A Ukrainian billionaire with close ties to President Viktor Yanukovych is on the verge of cornering Ukraine's fertilizer producing market.
A Ukrainian billionaire with close ties to President Viktor Yanukovych has bought a third domestic chemical plant in a flurry of acquisitions since September that, experts say, demonstrates his increased clout one year under the nation’s new leadership.
Cut out of the region’s lucrative natural gas trading business by former Prime Minister Yulia Tymoshenko, Dmytro Firtash is back in the mix of big business in Ukraine and appears more influential and formidable than ever.
Less than a year after the election of Yanukovych, presidential ally Firtash landed an arbitration court ruling in Stockholm, Sweden, that returned billions of dollars worth of natural gas from the state to the controversial RosUkrEnergo gas trader.
Tymoshenko had seized the 11 billion cubic meters of gas as part of a 2009 agreement with Russia, but the state reportedly dropped the claim to the gas after Yanukovych took power. Firtash co-owns the Swiss-registered trader with Russia’s Gazprom, with 45 percent and 50 percent shareholdings, respectively.
Now Group DF, Firtash’s holding company, says he has acquired Cherkassy Azot fertilizer plant. They didn’t reveal a price, but another Ukrainian businessman who sold it has been publicly asking for $800 million.
Oleksandr Paskhaver
Analysts estimate Firtash may have spent “billions” to acquire Cherkassy Azot and two other chemical plants since September, the others being Stirol and Severodonetsk-based Azot. All three plans were sold by other Ukrainian businessmen.
Firtash has said he is interested in buying a fourth chemical producer, the state-owned Odessa Portside Plant, which he envisions as a key hub for expanding his group’s portfolio.
Analysts say if all the deals go through, Firtash – owner of Vienna-based chemical group Ostchem – will become one of the largest producers of fertilizers and other chemicals in the European Union and former Soviet Union regions.
“The deals show the clear preference of top government officials for this oligarch,” said lawmaker Volodymyr Bondarenko, an ally of Tymoshenko, who lost the 2010 presidential election to Yanukovych.
“The deals illustrate the tendency of the president and his inner circle to follow old Soviet management style, which equates power with ownership,” economist Oleksandr Paskhaver told the Kyiv Post on March 3. “Consolidating assets is second nature for them.”
Appointed to an advisory role to Yanukovych last December as co-chair of a council on economic and social issues, Firtash has also been described as a longtime friend of Yanukovych’s chief of staff Serhiy Lyovochkin.
Ukrainian billionaire Dmytro Firtash has acquired Cherkassy Azot fertilizer plant, reportedly for $800 million. Firtash has spent billions of dollars on similar acquisitions of fertilizer and chemical plants, giving him control of an 2.44 percent of the world’s nitrogen fertilizer production capacity. Some raise monopoly concerns, but Firtash has said that uniting domestic fertilizer production will give the nation competitive export advantages. (Ukrinform)
He is also reportedly close with Energy Minister Yuriy Boyko and Security Service of Ukraine chief Valeriy Khoroshkovsky. While serving as prime minister, Tymoshenko alleged that Lyovochkin and Boyko were de facto benefactors of Firtash’s interests in RosUkrEnergo; the charge is denied by Yanukovych, Lyovochkin and Boyko.
Khoroshkovsky and Firtash have also had joint business interests in the Inter TV group, which owns the nation’s most popular television channel.
Firtash in December said he would leave the gas trading business to concentrate on consolidating his chemical production empire. According to Group DF spokesman Yevhen Smaglyuk, the aggregate capacity of nitrogen fertilizer production controlled by Firtash today is 2.44 percent of world capacity.
“The share of Ukrainian enterprises alone account for 2.28 percent of world capacity,” Smaglyuk said, adding that he did not know how much Firtash actually paid for Cherkassy plant.
Critics say his recent billion-dollar spending spree raises conflict of interest and anti-monopoly issues, while economists and industry analysts took note of the emergence of yet another monopoly in Ukraine’s oligarch-dominated economy.
But some speculate that consolidating the country’s ailing chemical businesses, long inefficient and intensively dependent on increasingly expensive Russian gas imports, could actually help revive the business, especially if Firtash is able to secure gas prices at competitive levels.
Tamara Levchenko, senior analyst with Dragon Capital specializing in agricultural and chemical sectors, said even without the Cherkassy and Odessa plants, Ostchem controlled more than half of the country’s fertilizer domestic production capacity.
“Future consolidation makes economic sense only if [Firtash’s] group secures a direct supply of natural gas to its nitrogen fertilizer plants, for example, by signing direct agreements with Russian gas suppliers.” Levchenko said. “It could create a company that could prospectively go public on a stock exchange, promising additional benefits for shareholders in the long term perspective.”
Firtash’s Ostchem currently incorporates nitrogen fertilizer producers Nitrofert (Estonia) and Tajik Azot (Tajikistan), according to the Group DF website, which does not mention his reported interests in Ukraine’s Rivneazot and other plants.
Nitrogen fertilizer manufacturing is energy-intensive and relies heavily on natural gas, something that Firtash and his companies appear to have plenty of since the Stockholm arbitration ruling in June.
Some analysts wonder how interesting the chemical businesses will be for Firtash after his large stockpile of gas runs out; Ukrainian business daily Kommersant speculated that Firtash could end up reselling the chemical assets to Russian companies, or partner with them in a bid to land lower gas prices from Russia.
Analysts predict prices on chemicals, namely fertilizers, could surge in the future due to global food shortages. Levchenko said the price for fertilizers has increased 48 percent in the last year and is likely to continue rising. At current prices, she estimated Ukraine would produce more than $2.7 billion worth of nitrogen fertilizers (ammonia, ammonia nitrate and carbamides) in 2011.
During a recent public appearance in Kharkiv on Feb. 4, Firtash said uniting domestic fertilizer producers under his umbrella will give domestic producers a national competitive advantage on export markets. He said the acquisition of Odessa Portside Plant, the terminus of the 1,396-kilometer long Tolyattii-Odessa ammonia pipeline, would increase his group’s leverage.
“This is not something any plant acting individually can do,” he said. “Everything depends on what group can acquire the most number of [nitrogen fertilizer production] plants. If our group succeeds, then we will sit down with government and hold talks.
To put it in perspective, the total production capacity of all Ukrainian nitrogen fertilizer plants accounts for 15 percent of total [world] production. So we are more focused on exports. Our main business is to export [fertilizer],” Firtash said, noting that the recent hike in oil prices has resulted in increased gas prices and will lead to higher fertilizer prices.
Whether Firtash will be able to enhance the competitiveness of the plants remains an open question for Ildar Gazizullin, an expert at Kyiv-based International Centre for Policy Studies.
“It is bad news that Ukraine’s anti-monopoly committee has been unable – or unwilling – to block Firtash’s plans to expand his fertilizer empire. On the other hand, it’s only natural that Russian business groups will now seek to increase control over the sector with new gas supply arrangements,” Gazizullin said.
Government officials may be forced to intervene if higher prices for gas and fertilizers contribute to inflation in other sectors of the economy, he said.
Referring to the close relationship between Ukraine’s leadership and its oligarch backers, Paskhaver said: “The new authorities don’t represent the big capital, as was the case under [ex-President Leonid] Kuchma and former President Viktor Yushchenko.
They now personify big capital, and their interests are in conflict with those of the state. It is obvious that Ukraine’s Anti-Monopoly Committee is not up to the task of regulating monopolies, the creation of which is now being facilitated by top government officials.”
Kyiv Post staff writer Peter Byrne can be reached at [email protected]
