EuroChem is ready to mothball the Lifosa plant in Lithuania

EuroChem, after more than a year of supply chain disruptions and raw material shortages, has decided to mothball its Lifosa plant in Lithuania. Due to restrictions from the Lithuanian authorities, the company’s profit fell four times last year. But, according to market participants, such a decision may not be final and represent an attempt to put pressure on Vilnius, since shutting down the plant will be more of a problem for the Lithuanian authorities.

From October 2023, EuroChem will temporarily mothball one of Europe’s largest plants for the production of phosphate fertilizers Lifosa in Lithuania. The main reason, as Samir Brikho, chairman of the board of directors of the holding, explained, was the impossibility for the company to “work steadily in an environment with so many restrictions.” According to him, due to the sanctions imposed by the Lithuanian government, the company was unable to conduct normal and profitable activities. Prior to this, Lifosa’s production volume was about 3.2 million tons, of which about 1 million tons (1.5% of world production) was diammonium phosphate. At the end of 2022, the plant’s net profit fell four times, to €30.3 million.

According to Samir Brikho, part of the staff will be retained, and the group will look for opportunities to continue Lifosa’s activities, including the search for potential investors that would be acceptable to the Lithuanian government. Since May 23, the plant has been shut down for annual scheduled maintenance with no specific reopening date.

The key problem for Lifosa was the impossibility of supplying raw materials from the Russian facilities of EuroChem and selling finished products.

In March 2022, Andrey Melnichenko, the main beneficiary of EuroChem, fell under the sanctions at that time, who soon left the owners, transferring a share to his wife Alexandra. As a result, EuroChem itself was not sanctioned. Despite this, from May 2022, the Lithuanian authorities introduced temporary management at Lifosa. That is, any decisions of the general meeting of shareholders required the prior approval of the administrator (see Kommersant dated May 24, 2022). Throughout the year, Lifosa worked intermittently, constantly stopping production. So, the plant was idle from March to August, and then from September to December 2022 due to lack of ammonia and a sharp rise in gas prices. This year, the outage occurred in February.

Lifosa hoped that they would agree with the authorities on the resumption of supplies of Russian raw materials, but in mid-June, Gintaras Paluckas, deputy chairman of the Lithuanian Seimas Committee on Economics, once again stated that “there can be no question” that the plant remains in the commercial system of Eurochem when the calculations and sales of products were carried out centrally. He clarified that since the imposition of sanctions, the Lithuanian company had no contact with the final recipient of the products, and there were no direct payments.

According to Kommersant sources familiar with the situation, the difficulty with replacing Russian raw materials with Lifosa is that each chemical plant is configured for a certain composition of raw materials. They name South Africa as possible alternative suppliers. But, says one of Kommersant’s interlocutors, the price of external raw materials, which remain expensive in key markets, directly affects the marginality of production. But in the current situation, he believes, finding a third-party supplier is the only option for reopening the plant. At the same time, Kommersant’s sources believe that Eurochem’s statement about the conservation of the plant may be a lever of pressure on the Lithuanian government, especially considering that the company supplies heat generated during the production of sulfuric acid to heat the city of Kedainiai.

Independent expert Leonid Khazanov agrees that shutting down the plant is more of a problem for Vilnius, given that up to 80% of the plant’s 900 employees may be fired during conservation.

He notes that the most significant problem for the authorities will be the search for apatite raw materials. In his opinion, the loss from the market of quite large volumes, which were previously produced by Lifosa, may become a serious problem for European farmers.

Olga Mordyushenko