Gazprom price deal with Poland to boost ferts firms - analysts

06 November 2012 17:24  [Source: ICIS news]

LONDON (ICIS)--Poland's fertilizer producers stand to substantially gain from the resolution of a pricing dispute between Russia's Gazprom and Polish gas monopoly PGNiG which will cut gas prices, analysts said on Tuesday.

The deal, which should mean the cancellation of the price issue suit filed in February by PGNiG at the Stockholm Arbitration Court, hinges on a new pricing formula which should more closely link the cost to Poland of Russian gas imports to evolving gas market prices, Gazprom and PGNiG said.

“The new formula and potential gas price cuts are a clear positive for the Polish fertilizer producers, including Zaklady Azoty Tarnow (ZAT), Zaklady Azotowe Pulawy (ZAP) and [ZAT subsidiary] Zaklady Chemiczne Police (ZChP),” WOOD & Company investment bank analyst Piotr Drozd said.

“Although the exact impact on Polish tariffs is difficult to estimate... we expect that the new contract could trim gas prices by 5-10%,” he added.

Gas feedstock accounts for 40% of ZAP’s Cost of Goods Sold (COGS), while the figures for ZAT and ZChP were 23% and 17%, respectively, Drozd said.

“Based on our sensitivity analysis, a 10% reduction in gas costs would up ZAP's [forecast] 2013 EBITDA [earnings before interest, tax, depreciation and amortisation] by 33%,” he said.

The figure for ZAT was 17%, while for ZChP it was 20%, Drozd added.

The Polish government has long insisted that the price Poland pays for Russian gas is completely unacceptable.

By: Will Conroy
+44 20 8652 3214

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