Ammonia to have ‘brother’ for $1bn

The Mendeleyevsk fertiliser factory registered a subsidiary with a self-explanatory name Ammonia 2

Ammonia to have ‘brother’ for $1bn
Photo: Maxim Platonov

As Realnoe Vremya found out, Ammonia JSC fertiliser factory from Mendeleyevsk founded a subsidiary Ammonia 2 PLC. The new legal entity was created to build a new plant in Mendeleyevsk, which had been planned since the launch of the first factory. However, the enterprise decided to fulfil the plan only with its new owner — Roman Trotsenko. But the production won’t be a mirror plant of the first factory, as it was assumed at first. Trotsenko is investing over $1 billion of his own and borrowed money in Ammonia 2. It will be two large ammonia and carbamide plants that will be located on an area of 55 hectares. The project is estimated to end in 2026. Experts consider the intention to build the second plant logical and justified.

Ammonia 2 becomes a legal entity

As Realnoe Vremya found out, Ammonia JSC fertiliser factory from Mendeleyevsk registered a subsidiary Ammonia 2 PLC. According to the Unified State Register of Legal Entities, it is situated in the industrial zone in Mendeleyevsk as well as the head company. Moreover, the subsidiary has the same director — Dmitry Makarov. Ammonia 2’s authorised capital totalled a million rubles, while Ammonia JSC is the only owner. The new company is said to produce fertilisers and nitrogen compounds as the main business. Additionally, the plant will manufacture process gases and other major organic chemicals, pesticides, other agro-chemical products and much more.

Apparently, the second factory that has been cherished since the launch of Ammonia JSC is starting to take shape. On 30 March, the enterprise confirmed to Realnoe Vremya that the new legal entity would implement Ammonia and Carbamide Facility Construction investment project.

Ex-Board Chairman of Ammonia JSC, Tatarstan State Council deputy Rinat Khanbikov unchangeably declared his intention to build the second stage of the factory, which would be a mirror plant of the first factory, when he was the head of the enterprise.

The subsidiary of Ammonia has the same director — Dmitry Makarov. Photo: instagram.com/madeintatarstan

Trotsenko to invest over $1bn in Ammonia 2

As for parameters of the future project, the enterprise said the following. The facility will be created on the basis of the existing one and envisages the construction of new shops with modern energy-saving units to make ammonia and carbamide as well as related infrastructural facilities. The production is scheduled to be put into operation in 2026.

“Nowadays the project’s feasibility study is underway. We can say for sure that investments will total over $1 billion. The investments in the project will be made with own and borrowed money,” Realnoe Vremya was told in the company.

The Ammonia 2 project will comprise two large plants: an ammonia plant with a capacity of 3,500 tonnes a day and granulated carbamide (4,200 tonnes a day). It is planned to allocate no less than 55 hectares for the construction. The plant will be located on plots of land that is already owned by Ammonia JSC. The products will be supplied both to the domestic and foreign markets.

Ammonia JSC notes that Ammonia 2.0 won’t be a mirror project of the first facility: “It will have unique characteristics and other production capacities”. Licensers of the project as well as its accurate parameters and characteristics are designed now.

A source that’s familiar with the situation in the market of mineral fertilisers notes the economic conditions are good. Considering the high dollar rate, carbamide just recently fetched $330-365 per tonne. Now prices for Fob Baltica reach $380 per tonne of premium carbamide. The granulated carbamide manufactured by the Mendeleyevsk fertiliser factory refers to this category. Due to the Ever Given (we are talking about the container ship that hit the bottom in the Suez Canal), prices skyrocketed, including the prices for fertilisers. “Now it is the seller’s market,” he states.

Ammonia JSC notes that Ammonia 2.0 won’t be a mirror project of the first facility. Photo: Maxim Platonov

Tatneft planned to become the investor

Five years ago, the mass media cited same Khanbikov and said that Tatneft was planning to become the investor of the construction of Ammonia 2 mineral fertiliser plant.

By the way, the memorandum on the launch of Ammonia 2 project was signed in Japan a few days earlier, on 29 February. And not only already mentioned Khanbikov and Director General of Tatneft Nail Maganov and the management of contractors of the construction of Ammonia Mitsubishi Heavy Industries (MHI) and Sojitz Corporation, signed the document in the presence of Tatarstan President Rustam Minnikhanov.

Khanbikov noted at that moment that Tatneft “wants to become the investor of this project because it saw itself there, moreover, its enterprises consume the products — ammonia and methanol”. He assumed that the value of Ammonia 2 wouldn’t be higher than the construction of the first enterprise ($1,4bn). The second plant was planned to be built next to the first one and with the same technology, since, as Khanbikov says, it was already “showing its effectiveness”.

However, Tatneft Director General Nail Maganov was cautious about his words in June 2016. Answering the question about the participation of the company in Ammonia 2 project, he said that investments in the project were calculated first: “We are considering, reporting on it to the Board of Directors”. According to Maganov, it is up to him the make the final decision. Nevertheless, these plans had to be put on the back burner soon, as Ammonia started to have problems...

Nail Maganov said in June 2016 that investments in the project were calculated first. Photo: Maxim Platonov

The plant couldn’t repay loans and accumulated debts

Ammonia started to be discussed for the first time in May 2009 when a memorandum was signed during then Prime Minister Vladimir Putin’s trip to Japan within a new facility construction project in the Novy Mendeleyevsk chemical plant.

A contract on the project was signed between Ammonia PJSC and a consortium of MHI, Sojits Corporation and China National Chemical Engineering Co in the presence of two presidents — Dmitry Medvedev and Rustam Minnikhanov — in 2010. Six years later, the plant was put into operation with President Putin with $2,1bn of investments, which was the money of VEB it borrowed from Japanese banks. The investments were meant to pay back by the middle of 2025.

The capacity of the first fertiliser factory was 700,000 tonnes of carbamide, 480,000 tonnes of ammonia and 230,000 tonnes of methanol a year. Revenue in 2016 amounted to 14,2bn rubles, 16bn in 2017, 18,2bn rubles in 2018.

Due to a sudden rise in the dollar rate in 2014-2015, the factory could not repay the loans and just accumulated debts. The fertiliser plant was profitable only once, in 2016. In 2017, it owed 700 million rubles, the loss in 2018 was 20,3bn rubles. By that moment, the enterprise had to repay 82,8bn rubles of long-term borrowings and another 34,4bn rubles of short-term loans. In 2017, Ammonia repaid $170m of the main debt and interest, it was to repay around $155m in 2018 and $600m in 2019.

The capacity of the first fertiliser factory was 700,000 tonnes of carbamide, 480,000 tonnes of ammonia and 230,000 tonnes of methanol a year. Photo: Maxim Platonov

In the hands of the new owner due to bankruptcy

As a result, the enterprise turned out to be in a very tough situation. Since Ammonia couldn’t repay the debt because of the ruble’s devaluation and a fall in prices for nitrogen compounds, in 2019, the Court of Arbitration of Tatarstan started preliminary bankruptcy proceedings — inspection — in the fertiliser factory on the initiative of the main creditor — VEB.RF state corporation.

The state corporation wasn’t going to destroy the promising production. The Supervisory Board of VEB.RF approved the Mendeleyevsk fertiliser plant’s salvation plan. It included restructuring of its commitments, recovery of its solvency and emergence from the bankruptcy proceedings by transferring receivables to the sector’s investor Azot KJSC. On 10 July, the Tatarstan Court of Arbitration approved a peace settlement of Ammonia JSC with the creditor, VEB.RF state corporation, and stopped its bankruptcy case.

At the previous first meeting of creditors of Ammonia, its only creditor — VEB.RF — voted for settlement. Though the text of the agreement was about terms and deadlines of Ammonia to satisfy the creditor’s requirements, it was also mentioned the possibility of substituting the side in the commitments.

In a word, the factory will pay 111,7bn rubles of debt to the new investor listed by Forbes — Roman Trotsenko’s Azot (his wealth was assessed at $1,6bn). The investor, in turn, offered the factory to repay the debt in instalments until 30 June 2025. Later, VEB.RF state corporation and Azot sealed the deal on the sale of Ammonia JSC’s debt for $900 million.

In September 2019, Trotsenko told journalist backstage at Eastern Economic Forum that he intended to allocate 12 billion rubles in the next two year to develop the Mendeleyevsk fertiliser plant. Last August, the press service of Azot from Kemerovo confirmed that the investor would finance the development of the plant of new chemicals at Ammonia with a sum that’s bigger than it had been announced.

It was specified that they planned to expand the range of products thanks to the construction of new plants manufacturing melamine, liquid carbon dioxide, modern AdBlue chemicals, carbamide-ammonium mixture, complex mineral fertilisers. At the same time, the company is going to increase the production of already existing plants that make ammonia, nitric acid and ammonium nitrate.

The factory will pay 111,7bn rubles of debt to the new investor listed by Forbes — Roman Trotsenko’s Azot. Photo: rucompromat.com

“If there are resources, we will try to build it”

However, Trotsenko didn’t clarify if he planned to create another Ammonia whose ghost had been taxing the brains of those who were involved in this project for long. And not only theirs.

Realnoe Vremya wrote last October that at a board meeting of Tatneftekhiminvest-holding President Rustam Minnikhanov, in a good mood, lifted the veil over the secret of reanimation of Ammonia 2 project.

“Yesterday I talked with the owners of Ammonia,” Rustam Minnikhanov intrigued business tycoons who were at the meeting. “Do you remember we had the second stage of Ammonia at first? So if there are resources, we will try to build it,” he was inspired.

“I think that it is also important for Gazprom to set up gas and chemical production inside the country. However, this will require supplying a billion cubic metres of gas additionally, Minnikhanov explained and promised that he would certainly turn to the head of Gazprom Transgaz Kazan if they came to an agreement.

According to the local mass media, Mr Minnikhanov is a long-term and loyal supporter of this project. Particularly, he tabled this issue as a priority on the agenda during his trip to Asia in October 2015. The Tatarstan president visited Japan and China then, which allowed him to meet with both investors and contractors of Ammonia.

Minnikhanov talked about this project and the top official of the country, Russian President Vladimir Putin, during his visit to Naberezhnye Chelny. The latter backed our president (though morally) that the project would be implemented. Then there were the famous statements of Rinat Khanbikov, moreover, they were made public at a briefing in the Tatarstan Cabinet of Ministers...

At a board meeting of Tatneftekhiminvest-holding, President Rustam Minnikhanov lifted the veil over the secret of reanimation of Ammonia 2 project. Photo: Maxim Platonov

The intention to build the second plant is logical

According to Finam Management’s leading expert Dmitry Baranov, around 55 million tonnes of fertilisers were manufactured in Russia in 2020, which is 5,5% more than in 2019. “More than 60 fertilisers that are in demand both in the domestic market and around the world are manufactured in the country. This is explained by the fact that the number of the population on the planet grows, and to provide everybody with food, it is necessary to increase the yield, which is hard to do without fertilisers,” he says. Moreover, the interlocutor of our newspaper noted that different plants had recently started to be used widely not only in food production but also in textiles, power engineering. More has to be produced, this is why fertilisers are needed.

And the production of mineral fertilisers isn’t limited to a rise in production capacity, qualitative changes take place here too. So the more eco-friendly mineral fertilisers with a smaller amount of harmful components are made. They are in high demand, enable to produce agricultural products of a higher quality.

According to the Russian Ministry of Agriculture, in 2020, agricultural producers purchased 4 million tonnes of mineral fertilisers, which is 467,000 tonnes than in 2019. This year, forecasts made in late 2020 suggest that Russian agriculturists planned to purchase around 4,5 million tonnes of mineral fertilisers (11 million tonnes).

“It is undoubted that the products of the Mendeleyevsk factory will also be in demand,” the expert of Finam Management expresses his confidence. “The intention to build the second plant is logical,” Baranov thinks. “This will allow increasing the production capacity, set up the production of new goods, remove some load from the first enterprise, which will enable to carry out its possible modernisation.”

Also, he says that we shouldn’t forget that the new enterprise will be more effective, able to consume fewer resources (electrical energy, water, heat, etc.), which will influence the value of products and will have a positive impact on the company’s reputation.

The most important moment during the construction of the new plant, the expert notes, is to resolve the issue of investments, not to allow incurring debts so that the recent story about the enterprise’s bankruptcy it got out of thanks to the new investor won’t repeat.

By Lyubov Shebalova
Tatarstan