INTERVIEW: Uralkali CEO Doesn't Foresee Further Russian Taxes

25.05.2012
Alex MacDonald / Dow Jones (UK)

Russian potash producer Uralkali (URKA.RS) hasn’t gotten any word, either official or unofficial, that the Russian government is considering raising taxes or plans to impose export duties on Uralkali.

Urakali’s strong profit margins has raised some investor concerns that the Russian government could seek to claw back some of those profits for public coffers, either through higher taxation or export duties, as it seeks ways to finance President Valdimir Putin’s campaign promises. At present Uralkali pays 20% corporate income tax, including a 3.8% exploration tax and doesn’t pay any export duties.

Uralkali, the world’s largest potash producer by volume, generated a 69% earnings before interest, taxes, depreciation and amortization, or Ebitda margin, in 2011, up from 56% the year before.

"We don’t have any signals, [any] information from the government that any of those taxes are going to be considered," Uralkali Chief Executive Vladislav Baumgertner told Dow Jones Newswires. "Of course, that cannot be fully excluded but…that is the decision of the government."

Baumgertner said that Uralkali has sought to establish itself as a socially responsible, growing company that makes significant contributions to Russia.

"We…invest a lot [in] mining, in social infrastructure in cities where Uralkali operates and we also support very strongly the agricultural sector in terms of discounted prices, giving Russian farmers huge advantages [over] their international peers," he said.

Uralkali sells potash in Russia at a heavily discounted price of $160-$170 a metric ton depending on the exchange rate, he said, compared with a spot price of $550/ton in Brazil, a key fertilizer market for the company. It also provides subsidies to Russian fertilizer producers. In 2011 it subsidized the Russian agricultural sector to the tune of approximately $115 million, a company spokeswoman said.

Russia accounted for about 18% of its sales volume and 12% of its revenue in 2011.

The company plans to spend $5.8 billion between 2011 and 2021 to boost its potash production capacity to 19 million tons from 11.5 million tons and has integrated development plans to build schools, spots centers, and medical clinics in the two towns where it’s the largest employer, Berezniki and Solikamsk.

He also noted that changing the tax regime on potash producers wouldn’t necessarily help the Russian government cover its budget expenditure since potash is a relatively small contributor to the government’s coffers compared with the oil and gas industry.

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