CNC and Nitro2000 CEO Stephen Pollard in front of the CNC plant last week.
Photo: Adrian Boodan

These are best of times for Stephen Pollard and the two ammonia plants he supervises in Point Lisas.

Ammonia prices at the beginning of this month were between US$290 and US$305 a metric tonne—about three times the trough prices of several years ago.

Last week, Nitro 2000 was commissioned and the plant, which started production in August, is operating at 105 per cent.

Nitro 2000, like the CNC plant, has a name-plate capacity of 650,000 metric tonnes a year.

In an interview last week, Pollard said that he feels like the “luckiest man alive.”

The construction of both plants was finished ahead of their schedules, said Pollard.

CNC, which commenced production in July 2002, was expected to take 30 months to build, but only took 26. Nitro 2000 was contracted to take 28 months to build but was completed in 23.

Bringing a plant to production five months ahead schedule, at a time when ammonia prices are at sky-high levels, means that Nitro 2000 can “start generating cash-flow earlier” which is “great,” said Pollard.

Local insurer Clico and German industrial giant Ferrostaal are the majority shareholders of the two ammonia plants. The other shareholders are EOG Resources, the US-based company which operates in local waters, US-based fertiliser company Koch (pronounced coke) and Kbr, a German company.

CNC cost US$318 million while Nitro 2000 was built at a capital cost of US$322 million. The plants were financed by Kfw, the German State-owned financier at a 70/30 debt to equity split. This means that the shareholders borrowed US$446.5 million and came up with US$193 million in equity.

Pollard said he was very happy with Kfw which is always looking to bring improvements to the financing of plants. (Apart from the two ammonia plants, Clico and its German partners also share ownership of four methanol plants)

Given the tight management of all aspects of the financing, construction and operation of the plants, Pollard said he would not want to change financiers for the new urea, ammonia, melamine plant the partners are building.

The loan is structured for repayment over eight years with the normal escrow accounts—an operating reserve and a cash reserve.

The high ammonia prices have allowed the CNC plant to pay dividends, although it is less than three years old.

This is quite unlike the Tringen ammonia plants, which are joint ventures between the State and Norsk Hydro, the Norwegian energy giant.

Tringen’s loans were structured such that the Government did not see much dividends from the plants before the loans were paid off.

Although he is the CEO of the two plants, Pollard is not directly responsible for the operation of the ammonia production.

The model that the joint venture partners have used for Caribbean Nitrogen and Nitro 2000 means that the operation, maintenance and engineering of the plants are all done by IPSL, a local company which is majority-owned by Clico Energy.

Pollard’s role as the owners’ representative is to make sure IPSL operates in compliance with its contractual obligations.

IPSL is paid a flat fee for every saleable metric tonne of ammonia produced.

Pollard also supervises the performance of the Koch, the offtaker or marketer of ammonia.

“The marketing arrangements are structured such that CNC gets the market price and the offtaker gets a commission, which is also called a discount. The higher the market price received, the greater the discount,” said Pollard.

The National Gas Company is also a major beneficiary of high ammonia prices.

Gas supply contracts are structured such that when commodity prices are high, the price of the natural gas which NGC has supplied is high and when the ammonia prices fall the gas price falls.

However, Pollard pointed out, the gas supply contracts have a floor but no ceiling “so that NGC shares 100 per cent of the benefit, but not 100 per cent of the downside.”

Pollard said natural gas is at the heart of the ammonia business as it accounts for about 60 per cent of the cost of the commodity.

“One of my big jobs is to ensure that IPSL does not use more gas than they need to,” said Pollard.

Managing the usage of natural gas is vital, said Pollard, because it is his goal to be the lowest-cost producer of ammonia in the world.

Because of the structure of the gas contracts, the ammonia producers do not have any control over the gas price. However costs can be controlled if the usage of gas is monitored and controlled.

Becoming the lowest cost producer in the world is important, Pollard said, because when ammonia prices go down, “it is the lowest cost producer who is going to be able to ride out the lean times while inefficient plants are not going to be able to survive.”