By Kjetil Malkenes Hovland
OSLO--Torgeir Kvidal, chief executive officer of Yara
International ASA (YAR.OS), said Friday that the company favored a
controlled shutdown of the Lifeco fertilizer joint venture in
Libya, amid deteriorating security and a lack of natural gas
supplies.
"Current gas production in the country is so low that we are
operating below 50% capacity, and that means negative cash from the
plant," Mr. Kvidal told The Wall Street Journal in an interview.
"If this continues or gets worse--and developments in Libya haven't
been positive for the security--it's just a matter of time before
we run out of cash."
Mr. Kvidal said Yara had asked the other Lifeco partners, The
National Oil Corporation of Libya and the Libyan Investment
Authority, each with 25% stakes in the joint venture, to mothball
the plant, but that the partners wanted operations to continue.
Yara's Lifeco partners weren't immediately available to
comment.
"With the current situation, financially and security-wise, we
would have wanted a controlled shutdown of the plant," Mr. Kvidal
said. "We have requested upgrades in the security of the
staff."
The Norwegian fertilizer producer paid $225 million for a 50%
stake in the Lifeco plant in northeastern Libya in 2009, but has
written down its value to $18 million. The plant was closed for
more than a year between 2011 and 2012 amid a civil war, and for
several months last year amid a blockade by a local militia
group.
Yara's first-quarter net profit dropped 59% on the year to 729
million Norwegian kroner ($93.22 million), amid a NOK929 million
write-down of Lifeco and a currency loss of NOK1.8 billion due to
the effect of a stronger dollar on the company's dollar-denominated
debt.
However, the stronger dollar has a positive effect on Yara's
revenues, and also reduces the company's fixed costs in euros,
Brazilian reals and Norwegian kroner, Mr. Kvidal said. The dollar
lifted Yara's first-quarter earnings before interest, taxes,
depreciation and amortization by roughly NOK1 billion compared with
a year earlier, he said.
"The NOK1.8 billion [currency loss] is a one-off effect due to
changes in the [dollar] exchange rate," he said. "But given that
change in the exchange rate, you'll get the same [positive] effect
on EBITDA quarter after quarter."
The company also benefits from falling prices for natural gas, a
key input to its fertilizer production. Yara's European energy
costs were NOK1.3 billion lower on the year in the first quarter,
and are expected to drop by another NOK800 million over the coming
six months, it said.
Write to Kjetil Malkenes Hovland at
kjetilmalkenes.hovland@wsj.com