Банкеръ Weekly

Briefs

HARD TIMES FOR BULGARIAN FERTILIZER PLANTS

The summer is coming and it is the dead season for fertilizer manufacturers. Both of the operating Bulgarian fertilizer plants - the Devnya-based Agropolychim and Neochim of Dimitrovgrad, can take a breath of relief - this season they managed to pull it through again. And they will probably use the break to think of how to do it in the autumn as well. Which mainly means that the plants' managers must find a way to cut down on their production prime cost and thus on its price. All fertilizer manufacturers share the opinion that the high price of gas, which is the main raw material for their production, is the main reason for their financial difficulties. For a long time they have been trying to snatch preferences from every coming government in a row, yet the fuel is becoming more and more expensive. As of April 1 all the clients of Bulgargas have to pay BGN239 per 1,000 cubic metres of gas (before VAT) instead of the previous price of BGN233 per 1,000 cubic meters. However, the price was revised after the end of the fertilizer trading season, and did not infuence the price of the final output (which is far from low).The ammonium nitrate (which is offered by Neochim) is being sold at BGN255 per ton (before VAT) whilst the international price of the fertilizer is about USD100-110/ton. As a result the profit of the Dimitrovgrad-based plant for the first quarter of 2003 was only BGN2.7MN, while for the same period of 2002 it was BGN9MN.The fertilizer manufacturers usually generate their highest profits in the beginning of the year. In the summer they post only losses, which gradually eat up the profit, accumulated by the spring. Therefore, the already mentioned profit of Neochim of BGN9MN for the first three months of 2002 had dropped to BGN2.6MN till the end of the same year.The State doesn't step on this market very efficiently. It both keeps high prices of imported nitrate fertilizers and subsidizes the agricultural producers, so as to be able to buy at lower prices. The trouble is that no one is profiting from this policy of the State. The measures taken by the Ministry of Economy in December, 2002, to introduce protective duties of 40% on the ammonium nitrate and to specify the import quotas of the nitrate fertilizer were a praiseworthy initiative. By April 30, 2003, however, the quotas were not utilized. Romania, which has the right to export 25,000 tons of ammonium nitrate for Bulgaria, has so far supplied only 10,200 tons. The other countries with which Bulgaria has signed preferential trading agreements have fulfilled their quotas of 7,000 tons in total. The other states have been given the right to supply 8,900 tons. They have exported only 2,872 tons to Bulgaria.Back in the autumn of 2002 the Executive Director of Agropolychim Philip Reaumbaut said in front of the BANKER weekly that he was not afraid of the Romanian production as the domestic consumption in Romania was high enough and the winter conditions were making the transportation along the Danube river rather difficult. According to Tosho Dimov, Member of Neochim's Board of Directors, however, the foreign competitors had failed to fulfil their quotas for lack of clients in Bulgaria. As we all know, the agricultural producers are not very well off. The customs preferences on the other turn strike exactly on their wallets.This year there were no queues for fertilizers. This happens for the first time in many years, Mr. Dimov commented. And the reason lies not only in the price, but also in the withdrawal of many agricultural workers. Because of the wheat's low purchase price in 2002, the fields under that crop dropped from 14 million decares in 2002 to only 7-8 million decares in 2003. Even the preferences which the Ministry of Agriculture and Forests gave in February 2003 failed to keep the farmers in wheat-growing. Agriculture Minister Mehmed Dikme gave farmers an opportunity to get BGN6 for the purchase of fertilizer, needed for 1 decare of sunflower, corn or wheat - BGN4.5 as a credit and BGN1.5 - as a subsidy. Yet the loaned funds can be taken only against a guarantee of 120% and must be repaid by December 10, 2003 with 3% interest. The deadline for utilizing the credit and the subsidy is May 15. The money for the entire campaign amount to BGN6MN and the money taken from taxpayers - to BGN1.5MN.The farmers' prefernces are not of much use for the Bulgarian fertilizer plants as they sell only 30% of their output on the domestic market, and the rest is exported mainly to Western Europe. Therefore, the enterprises are drafting their own projects, aimed to improve their efficiency. The preparation of programmes and projects for a wider range of products cost the Dimitrovgrad-based plant USD500,000. The funds have been launched for free by the US Agency for International Development (USAID). Tosho Dimov told the BANKER weekly that in end-May Neochim's representatives would meet in Moscow officials of Gasprom and will try to negotiate supply of cheaper gas. During his visit in Bulgaria in beginning of 2003 Alexey Miller, Head of the Russian gas giant, mentioned that he was ready to hold negotiations with the biggest gas consumers in Bulgaria. His offer was to exchange cheap gas for shares in Bulgarian enterprises. At the time all the managers of the fertilizer companies (including Chimco) were filled with hope that they might be among the selected ones. Yet, this matter has never again been discussed in public.Agropolychim drew a credit from BULBANK in order to realize its plans. The USD15MN loan will be used to modernize the lines for the production of phosphates and increase their capacity, and the daily output should reach 1,100 tons. Part of the funds will be invested in the improvement of the storehouses and of the distribution. It is also possible that Chimco's carbamide production lines might be transferred to Agropolychim. This might considerably cut down Agropolychim's expenses.The fertilizer plants have yet another enemy which will be gaining strength. This is organic farming. It means that farmers will begin using mainly manure. The future of the production of fertilizers is put in serious doubt by yet another factor - Bulgaria's future accession to the EU. The Agriculture Chapter foresees that Bulgarian farming should be developing by the rules of the biological agriculture. A regulation in that respect is effective since 2001. The natural rules of the market will also force vegetable-growers to cut down the use of fertilizers. Moreover, there are real conditions in Bulgaria for the development of biological agriculture and this is an advantage which might let us in the exacting European market.Organic farming is a myth. Production without fertilizers might be possible only in 30-50 years, Tosho Dimov commented.

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