EuroChem Group AG on July 3 said it plans to mothball its Lifosa phosphate fertilizer facility in Lithuania due to the impact of sanctions, which the company said has prevented normal and profitable operations at the site.
Located in Kėdainiai, Lithuania, Lifosa ranks as EuroChem’s largest phosphate plant and one of the largest manufacturers of high-grade phosphate fertilizer in Europe, with total capacity of more than 1 million mt/y. Lifosa’s main product is DAP, but the plant has been down since May for routine annual maintenance.
EuroChem said it will start the mothballing process in October, placing the majority of jobs at Lifosa at risk. “The decision follows more than a year of widespread supply-chain disruptions and shortages of raw materials since the company was sanctioned by the Lithuanian Government and placed under temporary administration,” EuroChem said.
Swiss-based EuroChem said the sanctions have caused Lifosa “many millions of euro in lost revenues to date and a significant negative financial result for the first half of the year 2023,” losses the company said are no longer sustainable.
“While the EU have stated that EuroChem is not sanctioned, we continue to experience the knock-on effects of sanctions, which have seriously impacted our European operations,” said EuroChem CEO and Executive Chairman Samir Brikho.
“Under normal circumstances Lifosa is a financially healthy business running at full capacity, producing a wide variety of high-demand products for our customers around the world,” Brikho added. “However, the placing of Lifosa under sanctions and cutting off its sales and supply chain has created an impossible situation marked by critical raw material shortages, production stoppages, and lack of access to markets and finance.”
The Lifosa plant was acquired by EuroChem in 2002, and EuroChem said it has invested almost €300 million in the facility since then. The facility halted operations in April 2022 after banks froze the company’s accounts due to EU sanctions imposed on EuroChem Group’s former controlling shareholder and CEO Russian billionaire Andrey Melnichenko (GM March 11, 2022).
Melnichenko subsequently resigned from the EuroChem board and withdrew as a main beneficiary of the group following his inclusion on the EU’s expanded list of sanctioned Russian individuals. Lifosa had been under the control of a temporary administrator since the end of May 2022. Production resumed in August last year but was halted in mid-September due to a shortage of critical raw materials, including ammonia, and high natural gas prices (GM Sept. 9, 2022).
EuroChem announced in November that it was completing preparations to restart Lifosa in December at a reduced capacity, assuming critical raw materials could be secured (GM Nov. 18, 2022). Brikho warned at that time, however, that additional steps would be necessary to sustain economic operation beyond December, including obtaining access to competitively priced raw materials and permission to market Lifosa’s products to a broader customer base. He said this required Lifosa’s “quick reintegration into the EuroChem sales and procurement network.”
EuroChem said Lifosa petitioned Lithuania’s government and financial institutions to lift their restrictions on the company “in full compliance with EU sanction regulations.”
“Over the last 15 months, we have engaged in dialogue with the Lithuanian authorities to find a mutually satisfactory agreement that enables our business in Lifosa to continue operating efficiently,” Brikho said. “However, it is unsustainable for us to continue to run the business in this restrictive environment. As a responsible employer, we now have to take some critical decisions.”
Media reports in June said Lithuania seeks to separate Lifosa from the EuroChem system, citing Gintaras Palutskas, Deputy Chairman of Lithuania’s Siemas Committee for Economics.
“Lifosa’s business model depends on accessing global sales markets and sourcing the best quality materials in closest proximity to its operations, at the lowest cost, including from EuroChem Group,” said Marc Heckler, Chairman of the Lifosa Board. “For Lifosa’s future viability, it is imperative we resolve the sanction-related obstacles facing our raw material supply chain, so we can sell freely to all markets and receive payments from our customers.
“We have gone to great lengths to maintain operations and keep our employees at work despite the many production stoppages,” Heckler added. “But this is no way to run a business that in prior years has been markedly successful. Maintaining Lifosa in current downtime mode costs several millions of euro per month and is uneconomic to sustain going forward. Although we will continue to work actively and diligently with the Lithuanian Government to find a solution, we are regrettably moving closer to mothballing in October.”