Energy supply in the chemical industry

| Production & Resources |

The continuity of energy supply safety is one of the key factors influencing the competitive position of the chemical companies on the market. The sector is known for the consumption of resources on an impressive scale, and the pricing of energy sources is a crucial determinant of the profitability of the business.

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Continuing the cooperation with LW Bogdanka

| About Us |

On December 17th, 2014 Grupa Azoty PUŁAWY signed an annex to the long-term agreement concerning the purchasing of coal from Lubelski Węgiel “Bogdanka” S.A. mining company. The annex includes details concerning the price and volume of coal shipments in 2015. Following the signing of the annex, the value of the agreement is 910 million PLN net, or smaller by 13.5% than hitherto.

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Environmentally conscious Polish consumers

| Enviromental Protection |

Research concerning environmentally-friendly awareness and habits commissioned by the Ministry of the Environment has shown that the Poles are taking increasing care of the environment and its protection. Numerous initiatives and pro-environmental programs are being implemented at present, both on the local and national level.

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Nitrogen is not the only cause of the greenhouse effect

| Enviromental Protection |

Nitrogen-based fertilizers are regarded as the main cause of greenhouse gases emissions resulting from agricultural activity. It is impossible for farmers to cease using fertilizers, but they can reduce the impact of their activity on the environment by limiting energy consumption and efficient fertilization. This will make it possible to cut greenhouse gases emissions to the atmosphere considerably.

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Future in shale gas

| Production & Resources |

Voting in of the shale gas bill by the Polish government was the first breakthrough on the path to the excavation of the resource. Another major step is the launch of Liquefied Natural Gas Terminal in Świnoujście, which is scheduled in early 2015. The port will open up new opportunities of sourcing natural gas, which will have positive impact on the key sectors of the Polish economy.

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The strategy of “PUŁAWY” is effective

| About Us |

The key to successful management of such a large enterprise as Grupa Azoty Zakłady Azotowe “PUŁAWY” is adopting the most suitable strategy of activity. If all elements of such strategy are implemented thoroughly and effectively, it is possible to raise the Company value, while at the same time take care of the quality of relations with customers and the community.

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Demand for fertilizers in Ukraine

| Foreign Markets |

The Ukrainian Ministry of Agricultural Policy and Food is expecting the farmers in the country to use c. 1.07 million tonnes of artificial fertilizers in the spring sowing season. The demand for nitrogen-based fertilizers is forecast to grow by 13% as compared to 2013 and reach 754,000 t. Also, 178,000 t. of phosphorous-based and 134,000 t. of potassium-based fertilizers are to be used.

Keeping the prices at bay

In November 2013, there were 817,000 tonnes of fertilizers in stock. At the end of December, the average price of nitrogen-based fertilizers neared 3,000 UAH/t, but was 15% higher at retailer outlets. The farmers’ associations made an appeal to the government to intervene, so as to stop the prices from rising.

Problems with stock?

The beginning of work on the farms is near, but difficulties with purchasing fertilizers have started already. The Ministry is recommending a review of natural gas prices for the chemical companies, which could help decrease fertilizer prices.

Support for producers and farmers

In order to stabilize fertilizer pricing, The Ministry of Agricultural Policy and Food has suggested that prices be frozen each quarter, with some adjustments possible. The government has also proposed providing electricity and basic resources to chemical companies on preferential terms. Such measures could foster the competitive edge of the Ukrainian fertilizer market.

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Drought in Brazil

| Foreign Markets |

Pele’s home country is a land of contrasts, including differences in weather conditions. One the one hand, a part of Brazil is plagued by floods, on the other hand the North-East regions suffer from acute shortages of water.

Estimating losses for the farmers

It has not rained for two years in some parts of this area. Such drought as the current one has not occurred for almost 50 years! Lack of rainwater impacts agricultural production, and the sugar cane plantations in particular. This part of the country accounts for 10% of Brazilian sugar cane production. Sadly, due to the drought crops have shrunk by one third. Cotton and maize plantations are also drying up. Cattle owners suffer as well, because animals die as a result of inadequate access to food and water.

Threats for the industry

Drought has brought about another kind of danger, with hydropower plants losing efficiency. The output threshold ensuring stable electricity supply is 34%. However, in late December the actual capacity was only 32%. Consequently, power supply may become interrupted, causing difficulties for industrial plants and households.

Individuals depend on water tanks

Water circulation in small towns relies on a network of traveling water dealers. Most towns and cities do not have water reserves, nor are there any waterworks. The resource is therefore provided by businesspeople who purchase water from private wells and distribute it in tanker trailers pulled by donkeys.

Challenge for the country

Brazil might appear to be immersed in World Cup preparations, there are other challenges for the government in Brasilia, however. One major issue is the shortage of water in the North-East states. Finding a way to aid the local community in this predicament would prove a real achievement for the politicians in power.

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It’s smart to bet on gas

| Production & Resources |

The growing demand for electricity is forcing Polish enterprises to look for new, cheaper and more efficient resources. These include natural gas, which is becoming more and more widely used in power plants.

Coal is not enough

A key element causing such shift in the approach to energy policy is ensuring the security of power supply at peak times (6:00 to 13:00 and 15:00 to 22:00). A power plant using coal needs c. 12 hours to reach the requisite output capacity. However, a gas power plant requires as little as 90 – 120 seconds before it starts to provide electricity to the network. Investments in gas power plants are clearly justified seeing that it is expected that the shortage of electricity will reach 6,000 MW in 18 months’ time.

Cheap fuel is an opportunity

European power providers are following the example of American ones. The price of natural gas on the US market is now three times lower than in Europe. As a result, the resource may be exported at competitive prices.

Currently, Polish power companies are not only active in the search of shale gas, but also waiting for the launch of LNG (liquefied natural gas) Import Terminal in Świnoujście. With a view to benefiting from cheaper gas, “PUŁAWY” is also intent on building a combined cycle power plant, making the company independent of energy coming from coal.

A crucial investment

“PUŁAWY” power plant in a joint project by Grupa Azoty “PUŁAWY” and PGE (Polska Grupa Energetyczna). “PUŁAWY” is one of the main consumers of natural gas in Poland, using c. 1 billion m3 of the resource annually, and having acquired considerable experience in purchasing and running the requisite infrastructure. PGE is the leader of Polish power supply market with the necessary potential for such a major investment. Owing to synergy of the goals and competences of both entities,there will be a new combined cycle power plant, providing electricity and heat for “PUŁAWY” and selling the surplus on domestic market.

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The financial closing of Q4 in “PUŁAWY” proved…

| Prospects & Investment |

… a success! Despite the economic crisis, our enterprise can proudly announce a net profit of 87,5 million PLN produced during the final months of 2012. There have been a few factors which brought about such a result, the factors which are continually having an impact on our business activity.

“PUŁAWY” up and running

Undoubtedly, a major reason for the company’s prosperity on the nitrogen fertilizers’ market was the fact that numerous international competitors have suspended, limited or resigned from manufacturing this kind of products. Among issues which triggered such decisions were difficulties with natural gas supply, which only highlights the necessity to diversify our energy supply. Otherwise, our company’s operations may become disrupted due to external reasons.

The chemical sector

Increased prices of chemical products and improvement of EU balance of trade in this branch of business resulted in increased business confidence in the sector. Such signals always have a motivating influence on particular market participants, even if the production volume decreases slightly.

What about energy resources?

At the end of September and beginning of October 2012, new parliamentary bills were announced regarding electrical and natural gas energy acts and legislation on renewable energy sources in Poland. The bills would replace the currently binding Energy Act, which is no longer adequate with respect to actual market situation and current economic conditions. From the viewpoint of “PUŁAWY” Capital Group, positive changes in this respect will be crucial for our further development, mainly due to the fact that we are one of the largest consumers of natural gas in the country.

More than farming products

Although “PUŁAWY” is immediately associated with nitrates fertilizers, the company is also active in various other business sectors, such as construction, furniture manufacturing, textiles and plastics. Our involvement in those kinds of activity originates from the fact that we produce components for the manufacturing of laminates (melamine) or construction supplies (caprolactam). Consequently, business dealings with clients from the aforementioned sectors had a major impact on financial results in the fourth quarter. First and foremost, we ought to mention sales to Chinese partners, who are among main clients purchasing caprolactam. Thus, we are continually striving to uphold and strengthen our position on the Chinese market.

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