Azoty to spend €1.8bn on expansion, EU regulations a ‘burden’ – CEO

Interview article by Jonathan Lopez

LONDON (ICIS)–Grupa Azoty is to spend €1.8bn on expansions both in Poland and further afield, but the competitive disadvantages for chemical and fertilizer companies in Europe due to high feedstock costs and the “burden” of EU regulations persist, the Polish firm’s CEO said on Thursday.

Pawel Jarczewski said Grupa Azoty, which utilises natural gas as its main feedstock, has benefited from a fall in prices in recent years. However, he says the price of the raw material continues to be much higher in Europe than in the US or the Middle East, putting companies from the region at a competitive disadvantage against peers in other regions.

“We are going to spend €1.8bn in the next six years, which should increase our efficiency in existing plants and bring about new plants. Natural gas is our main raw material, but we also use sulphur, coal, phosphates [and] potash. Regarding phosphates and sulphur, we are already benefitting from our own resources out of our mines in Poland and Senegal,” said Jarczewski.

“Poland used to rely entirely on Russia’s natural gas, but now we can buy gas from any part of the world, thanks to the LNG [liquefied natural gas] terminals [constructed] in Europe, which will potentially create a solid platform for the running of the fertilizers business in Europe,” said Jarczewski.

“I cannot say we are expecting uniformity about the access and cost of gas, but we are expecting gas in Europe will be step by step more available and have lower prices.”

Azoty’s CEO praised the “liberalisation” experienced by natural gas markets in the EU in recent years, which has allowed a reduction in prices. However, while reduced consumption in Ukraine due to political issues and lower consumption across the region on the back of the financial crisis also permitted lower prices, the EU continues to be at a disadvantage, Jarczewski said.

Despite financial analysts’ concerns that high input costs could weigh down Grupa Azoty’s growth options in the future, Jarczewski said the company will fight that circumstance by improving technological efficiency at its plants, as well as through the application of sustainability measures that should help control costs.

Azoty’s shareholders include the Polish state, which controls the largest stake – 33% of the company’s shares. Financial analysts have commented on how this situation impedes the company from functioning as a private entity which puts the interests of shareholders as its primary goal.

“Sometimes investments are made thinking more on the politicians’ interests than the shareholders’, and that make the company less attractive to invest in than some of its peers,” an equity analyst from a large US bank based in Warsaw, Poland told ICIS News on 27 May.

Jarczewski, however, does not “understand that way of thinking”. He says that if companies want to grow the only way forward is to invest profit in further expansion, and claims the company’s shares have doubled their value in the last 10 years.

The Azoty CEO did not, however, want to discuss why a joint venture with Polish chemical peer Lotos and a third European investor to build a petrochemical complex near Gdansk, northern Poland, fell through. “The project is suspended because of the business environment at this moment in the oil business in this part of the world. It was just about economics,” said Jarczewski.

However, Lotos’ chief operating officer, Marek Sokolowski, said on 21 April the joint venture fell through because the third European player cancelled its participation at the last minute, threatening the viability of the project.

Azoty’s CEO preferred to comment on the company’s new project – a propane dehydrogenation facility for the production of propylene – for which the state-controlled Polish Investments for Development agency agreed to finance 25% of the costs.

Jarczewski added that he believes chemical companies in Europe suffer an excessive regulatory “burden” that makes them uncompetitive against their peers in the US, China or the Middle East – and he said Azoty is in “day to day” contact with the European Commission in order emphasis the “growing problems” of regulation.

“What’s the most problematic issue for the industry is the legislative burden. Protection, registration… that really creates a burden for the sector. This is now a critical issue being discussed on the level of chemicals and fertilizers European associations,” he said.

On whether EU officials listen to these arguments, however, Jarczewski is less clear. “I think in many areas we reached a constructive dialogue,” he said.

The Polish producer is also concerned that the Transatlantic Trade and Investment Partnership – a trade agreement being negotiated between the EU and US – should guarantee exemptions for chemicals in Europe on the back of the high input costs companies in the region have to endure.

The company already made public this petition on 23 February, arguing “exceptional clauses” should be applied to the chemical industry.