Ammonia stuck in the pipeline

Ukraine is threatening to shut down the ammonia pipeline.  
The dispute of the Russian producer of nitrogen fertilizers, Togliattiazot (ToAZ), with Ukrainian transport operator Ukrhimtransammiak may result in shutdown of the pipe used to deliver the Russian products to the port of Odessa. Pumping stopped at the end of December, and so far the parties have failed to agree on the price of transport, making mutual claims. So, ToAZ through the court demanded the return of its $11 million for the transit loss.

The operator of the Ukrainian part of Togliatti-Odessa ammonia pipiline, UGP Ukrhimtransammiak, warned the main supplier Togliattiazot (ToAZ), that it was preparing to shut down the pipeline facilities. This was reported by Interfax referring to a letter from the company. It states that the situation was caused by the failure of ToAZ to sign an additional agreement to the contract dated 24 December 2007, within which ammonia transit was implemented, and to repay the debt of $901 thousand. The debt arose due to the decision of Economic Development of Ukraine, adopted in August 2015, which introduced an increase of more than $8 per ton of ammonia for transit through the territory of Ukraine. ToAZ challenged the rate increase in court and won it, but the increase was implemented in relation to its products for over a year. The Russian company claims that the debt is fully paid for the transit of ammonia on the territory of Ukraine (see Kommersant dated 27 December 2016).

As explained ToAZ explained to Kommersant, under the current agreement, the total cost of the transit transportation of ammonia in the Ukrainian part of the pipeline is $43.77 per ton, while Ukrhimtransammiak insists on increasing the cost of transit to $45.1, "without providing any argument." According to the Ukrainian party, the rate, on the contrary, was reduced. In the letter, the company notes that the Russian producer did not want to continue pumping through the pipe, despite the decline in the cost of services for transit by $10: from $ 55.09 per ton in 2016 to $ 45.1 from 1 January.

Ukrhimtransammiak indicates that because of the actions of ToAZ it has no means to ensure the reliability and safety of the Ukrainian section of the ammonia pipeline. The company complained that the tariffs for the provision of services related to the transit of ammonia, in the amount of $13.22 per tonne, which the Russian company insists ti be the fair price, are unprotitable for Ukrhimtransammiak.

ToAZ resonded by saying that during 2016 Ukrhimtransammiak provided identical service for the transportation of ammonia to Ukrainian customers for $1.3 at the current rate without complaining of any losses. The company notes that it is proposed to exclude transshipment services from the contract, provision of which, according to Ukrhimtransammiak, is supposedly unprofitable. But the Ukrainian party insists on maintaining them.

Ukrhimtransammiak stopped pumping the ammonia from ToAZ on December 23, as the company was ahead of schedule with the planned volumes, and the operator refused to accept additional volumes. The pumping has been stopped ever since, on 13 January ToAZ sent Ukrhimtransammiak an offer to voluntary pay damages in the amount of $11.5 million incurred during the period from 1 to January 13 due to the fact that the Ukrainian party continued to block the transit of ammonia. The company also needs to resume pumping of 130 thousand tons of liquid ammonia planned for January 2017. On January, 23 ToAZ announced the lawsuit in the International Commercial Arbitration at the Chamber of Commerce of Ukraine to recover from the $11.5 million from Ukrhimtransammiak. As ToAZ explained, if pumping through the pipe is not restored, the company will redirect the supplies to the railroad, including the production of other products such as urea.

ToAZ proved in court the illegality of the Ukrainian transit uplift

The Supreme Administrative Court of Ukraine in November last year quashed the order Ministry of Economic Development of Ukraine, thus canceling a premium to the tariff for the transit of ammonia across the country. The court process was won by Togliattiazot, which in 2015 had difficulties with the supply of goods for export due to the fact that "the Ukrainian party manipulated" prices for the transportation of ammonia. The company intended to recover the losses incurred during the duration of the canceled order.