Updated May 7, 2008

JSC Voskresensk mineral fertilizers (VMU) intends to construct c arb amide production line with up to 400 000 tons capacity a year and to increase its capacities of mineral fertilizers output more than one and half times.

Installation can become the first new carbamide production in Russia for the last 20 years.

And only the possible price drop for mineral fertilizers and growth of internal gas prices endanger the project efficiency.

As reported the chairman of VMU directors' board Sergey Melnikov, the company signed a contract with the Research and Design institution for carbamide and organic synthesis products (NIIK) concerning construction of the new installation to produce carbamide with 200 000 tons capacity a year. As explained in NIIK, a un it will produce 600 tons of carbamide a day w ithin the first stage, and later it is possible to increase the production capacity up to 1200 tons a day.

Sergey Melnikov reckons "a very prospective direction of the enterprise production activity has been chosen". "Researches done by NIIK have proven that the Russian carbamide remains competitive on the world markets with the current level of ammonia cost, even in terms of Gazprom plans to increase a price for the natural gas twice by 2012,", considers Mr. Melnikov.

"Voskresensk mineral fertilizers" produces ammophos, ammonia, sulphuric and phosphoric acids. Now VMU produces 700 000 tons of mineral fertilizers altogether a year. In spring 2006 Phosagro Holding sold 51% of VMU to AgroProdMir Group, that later bought 21% VMU stocks out at Phosagro.

According to the unofficial information, Phosagro still controls 28% stocks. VMU profit for 3Q 2007 totaled RUR 4,84 billion, net income – RUR 475 million.

The parties do not expose the construction cost and terms of the new carbamide installation. But in NIIK mark that, normally, carbamide production construction with 450 000-500 000 tons capacity a year costs €130-150 million, and the terms of such construction are 2,5-3 years.

Now the institution

cooperates with almost all carbamide producers in

the CIS, such as Acron, EuroChem, GrodnoAzot, TolyattiAzot and KuibyshevAzot.

Greenfield construction of carbamide new line is a precedent for the Russian chemical industry, as, according to NIIK data, the last

carbamide production was launched in the country at the end of the 1980th.

Unit capital expenditures for such aggregates are less than within upgrade to increase capacitates, as add in the institution.

Moreover, companies buy second hand foreign units to expand the production. "Acron has brought such units from Italy, and EuroChem – for Novomoskovskiy Azot from Serbia. Within the assembly process the capacity of such units increases up to around 1 000 tons of carbamide a day", explain in NIIK.

Acron first vice-president Alex ander Popov consents that there have not been any new carbamide productions for more than 20 years in Russia, and he names VMU project rather interesting in terms of the possible capacity increase.

According to him, now Acron also starts to set the new production up at the Novgorod field on the equipment basis it has brought from Italy two years ago. Acron plans to increase its carbamide capacities from 450 000 to 900 000 tons by 2010 using this new installation.

Analysts argue about the prospects of VMU new production.

Head of AtlantaPioGlobal analytical department Georgy Ivanin considers the fertilizers producers invest into new productions since prices for all kinds of fertilizers are now at the historical maximum.

"World carbamide prices have currently reached the $600 mark per ton, and ammonia production becomes unprofitable at just $250-300 level for 1 000 cu m of gas", marks Mr. Ivanin. Now the price for 1 000 cu m of gas at the internal market is $65-70, and Federal Tariffs Service forecasts its price growth up to $164 by 2011. But Bank of Moscow analyst Georgy Volov considers that within several years of installation construction the prices for fertilizers can down, and expenditures can up.

"Mineral fertilizers industry is primary oriented to the export.

And such production construction in the center of Russia is rather doubtful in terms of competitiveness", he considers. Analyst marks the Russian carbamide can primarily compete with carbamide of Near East companies that have rather cheap gas and less transport expenditures due to close location of seaports and productions.