From 2015 to Q1, 2018, Ukrnafta sold 1.6 ths of ammonia, totaling UAH 9.5 bln (VAT exclusive), for Dneproazot, the company’s press office reports.
The Ukrnafta’s gross profit equaled UAH 3.5 bln. The ammonia production profitability performance was positive and was 50% in 2015, 34% in 2016, 19% in 2017 and 47% in Q1, 2018.
It is noted that the profitability fluctuations were dictated by the dynamics of global prices for ammonia, to which Dniproazot product sale price is linked. In addition, in Q2, 2017, the profitability was negatively influenced by the forced stopping of gas production on several deposits as a result of blocking the process of extending special permissions from the regulator, which was found unlawful by the court.
It should be reminded that Ukrnafta started cooperation with Dniproazot in July 2010, concluding with company the contract for leasing ammonia production facilities and the contract for selling ammonia, produced by Ukrnafta, to Dniproazot on the company’s territory.
In July 2015, the contract was extended till late 2017. The sale price was linked to the export price of ammonia based on FOB Yuzhny (Odessa) as per quotations of the international agency Ferticon with further recalculation for EX-WORKS.
The contract was also supplemented with the clauses, which permitted Dniproazot to file substantive financial claims in case early unilateral termination of the contract by Ukrnafta and required prior notification of the denial to extend contract a year before the expiry date.
In late 2016, Ukrnafta informed Dniproazot about its denial to extend contract and in late 2017 the contract expired.
However, the parties concluded the supplementary contract in late 2017, which enabled them to organize transfer of production facilities from lease and personnel without affecting the production process as well as to ensure receipt of licenses and permissions from Dniproazot for ammonia production within Q1, 2018.
Meanwhile, Ukrnafta offered to revise the formula of calculating the ammonia price that allowed to additionally increase the profitability of operation. The operations on processing gas into ammonia ended in late March 2018 and from April the company sells gas to clients on the Ukrainian market under exchange-traded and bilateral contracts.