The structures of Gazprom and Bashkhim cannot agree on the price of ethylene

Ethylene prices became the cause of a protracted conflict between OJSC Salavatnefteorgsintez (SNOS, Gazprom) and OJSC Kaustik (Bashkhim). Since the beginning of July, SNOS has stopped supplying ethylene to Kaustik’s main production facilities, as a result of which the company is suffering losses. SNOS cites the latter’s debts in the amount of 59 million rubles, accumulated over previous deliveries of raw materials, as the reason for the severance of relations with Kaustik. Bashkhim denies the existence of a debt, considering ethylene prices to be inflated. The government of Bashkortostan is concerned that the conflict between economic entities will affect the companies' teams.

As Kommersant learned yesterday, as a result of an unresolved conflict between OJSC Salavatnefteorgsintez and OJSC Kaustik, the latter stopped receiving ethylene from the beginning of July, and from the beginning of August was forced to stop a number of main production facilities. As an informed source in Bashkir Chemistry told Kommersant, the official reason for stopping the supply of raw materials to Kaustik was the repair of the ethylene production plant at SNOS, and therefore Kaustic was also forced to put a number of lines for repairs, although according to The renovation work was scheduled for September. Until August 2, other Kaustik production facilities operated using ethylene reserves, but from August 21, 70% of the enterprise’s personnel, about 3.5 thousand people, were released from work and sent on paid administrative leave, the source explained.

• JSC "Kaustik" produces caustic soda, polyvinyl chloride, cable plastic compounds and other types of chemical products. Modisanna Ltd owns 51.77% of the authorized capital of the JSC, OJSC Bashkir Chemistry - 48.23%. At the beginning of June, Kaustik became the owner of 93.8% of the shares of OJSC Berezniki Soda Plant (BSZ, Perm Territory). On the basis of Soda and BSZ, Bashkhim plans to create a federal company that will control 70% of the soda ash market in Russia.

• OJSC Salavatnefteorgsintez is one of the largest Russian producers of butyl alcohol, gasoline, ethylene, propylene, polyethylene and other petrochemical products. Elandirix Holdings Limited owns 6.02%, Gazprom Pererabotka LLC - 50%, Leader CJSC - 18.05%, Agana Management Company LLC (trustee) - 6.56%.

The conflict over ethylene prices between SNOS and Kaustik, which regularly arose since 2006, escalated in July. The last price at which the Bashkhim structure purchased raw materials from the Gazprom structure was 21.2 thousand rubles. per ton. The conflict became public after the general director of Bashkir Chemistry Nadezhda Pinigina voiced it on August 13 at a meeting of businessmen with the President of the Republic Rustem Khamitov. She, in particular, reported that Kaustik was suffering significant losses as a result of SNOS selling raw materials for PVC production to Bashkhim for 3 thousand rubles. more expensive than the Belgian company Solvay. The latter also has a PVC production plant near Nizhny Novgorod and is a competitor to Kaustik in this sector. According to Ms. Pinigina, SNOS gives “priority to Western companies” to the detriment of “domestic producers.” At the same time, she recalled, the problem of inflated prices for Salavat raw materials was discussed in November 2009 at a meeting with Deputy Prime Minister of the Russian Government Igor Sechin, but the conflict has not yet been resolved. “The cost of raw materials at Salavatnefteorgsintez is greatly inflated, the profitability is set at more than 30%,” said the general director of Bashkhim, adding that Kaustik has to buy raw materials in other regions, as a result of which “the price of the product turns out to be uncompetitive.” Ms. Pinigina noted that the conflict with SNOS cannot be resolved without state support and asked for help from Mr. Khamitov. According to Kommersant's information, in early August, Bashkhim made a similar request to the plenipotentiary representative of the Russian President in the Volga Federal District, Grigory Rapota, and last Friday the topic was discussed at a meeting of the SNOS leadership with Deputy Plenipotentiary Representative Alexei Kubrin and at a meeting between Mr. Kubrin and Mr. Khamitov.

Salavatnefteorgsintez claims that the company “fairly and in full” fulfilled its obligations to Kaustik. “Until December 31, 2009, SNOS supplied Kaustic in accordance with a five-year contract,” company official representative Diana Lapshina explained to Kommersant yesterday. “Since October 2009, negotiations began on concluding a new long-term agreement, in which there is no agreement with Kaustic.” We managed to agree on a price formula for ethylene.” According to Ms. Lapshina, the proposed formula takes into account the cost of processing hydrocarbon raw materials, the costs of its processing and an additional 15% of the profitability of ethylene. The price is calculated according to a similar scheme when concluding contracts with other buyers of this raw material, explained a representative of SNOS, emphasizing that “a uniform pricing policy is applied to all consumers.”

Over the past six months, SNOS has been building relationships with Caustic on the basis of short-term monthly contracts. According to sources in Bashkhim, the selling price for ethylene increased from 14.5 thousand to 21.2 thousand rubles. per ton. In July, SNOS set a price for Bashkhim at 24.5 thousand rubles. per ton, which the company calls “unreal”. SNOS insists that this price is determined by the market. “On similar terms, an agreement for the supply of ethylene was signed with Kazanorgsintez,” explained Ms. Lapshina. At the same time, she made it clear, there are no market grounds for reducing prices for ethylene and there will not be in the coming years, since Salavatnefteorgsintez will soon launch the production of low-density polyethylene, the main raw material for which is also ethylene, and then there will be a free market for this raw material in Bashkiria won't happen at all. At the same time, the company representative emphasized, if Kaustik’s debt is repaid, SNOS is ready to resume supplies.

“We are ready to buy for 18 thousand rubles,” Bashkhim told Kommersant yesterday, citing the fact that this price was recommended on August 20 at a meeting at the Russian Ministry of Energy. According to an interlocutor in the company, the debt of 59 million rubles is the difference between the price that SNOS “wants” and the price set last fall for 2010 by the Ministry of Energy of the Russian Federation and the Federal Antimonopoly Service of Russia. At the same time, the company emphasized, during the downtime of Kaustik, plastic production in Russia decreased by a third, and the need for products is covered by imports from China.

Republican authorities have different views on the possibility of resolving the conflict. As Rostislav Murzagulov, deputy head of the presidential administration of the Republic of Belarus, told Kommersant yesterday, “the president of the republic does not sympathize with either side,” but is “extremely concerned that the enterprise’s workforce has begun to suffer because of the conflict.” “The head of the republic will understand the situation, and the officials who created it will be given an appropriate assessment,” explained Mr. Murzagulov. The Minister of Industry and Innovation Policy of the Republic of Belarus Robert Vagapov believes that it will be “impossible” to resolve the conflict at the regional level, since “enterprises that are part of Russian corporations” are involved in it. “Problems of using raw materials must be resolved at the highest level, as was the case during the time of the State Planning Committee, which assumed regulatory functions,” says Mr. Vagapov.

According to Kommersant's information, an end to the dispute can be put in September at a meeting on the development of petrochemicals with the participation of Russian Prime Minister Vladimir Putin and Deputy Prime Minister Igor Sechin.

Ilya Amladov

"Caustic" was left without SNOS