A slowdown of the economic activity is a fact.  Production is shrinking while the jobless rate is on the rise. How is this affecting your company?

Zakłady Azotowe Puławy is a chemical company, and chemical companies are sensitive to global GDP levels.  However, we are holding up well thanks to investments. The investment-oriented approach, which we have implemented for the past few years, has helped us outperform the market in challenging times. This was the case in 2008–2009, when the global financial crisis took a severe toll on the industrial sector around the world. While our peers reported losses at the operating level, Zakłady Azotowe Puławy paid out a dividend that was one of the highest on record. This year, too, we plan to share a sizeable portion of profit with our shareholders.

What exactly are the investments that prop up your business in difficult times?

In order to keep afloat on the market that relies on natural gas as its key feedstock, with gas prices in our part of Europe exceeding the levels seen anywhere in the world, a capital-intensive business will only cope using an innovative approach. Such approach involves investing in intellectual capital, which is the cornerstone of our business. We create conditions conducive to the self-development of our staff.  Considering the skyrocketing prices of feedstock, we needed to develop solutions that work. They rely on people's knowledge and technologies available at Zakłady Azotowe Puławy, and involve the upgrading and modernising of our facilities and expanding our production capacity. Urea production may serve as an example here. Today we are the second-largest urea producer in Europe, despite natural gas prices being a significant headwind in our business. But it is the proactive approach that helps us overtake competitors. We need only 845 cubic meters of natural gas to make one tonne of ammonia, 30% less than the world average. We have ramped up urea production from 940 thousand to 1,215 thousand tonnes, which makes us the second-largest urea manufacturer in Europe.

The ultra-modern plant and intellectual capital are not enough to shield the company against economic slumps.

Our experience is quite different, and today the rest of Europe should learn from it. There is a scarcity of economists and an abundance of financiers, who crunch numbers and make no effort to invest in the future. Let us go back to 2001. The climate was gloomy then, too, yet we embarked on a project to build two melamine units worth PLN 600m. Melamine is an intermediate in the manufacture of furniture, panels, laminates and other products. The project has enabled us to expand internationally. When times are hard, conditions need to be created that will keep the company going if times get even harder. Investments need to be made in new products and efficiency improvements. At present we have projects under way that will allow us to make fertilisers based on urea and sulphur. Together with the Fertilizer Research Institute of Puławy, we are establishing a company to produce plant extracts for the pharmaceutical, cosmetics and food industries. The extracts are used to make various types of liquids containing omega-3 and omega-6 fatty acids.

The European Commission's preliminary decision indicates that the Azoty Tarnów Group will be given clearance to acquire Zakłady Azotowe Puławy. So it is likely that the company will soon become part of the Azoty Tarnów Group. What is your comment on that?

In addition to the EC clearance, we also need to secure approval of the existing shareholders of Zakłady Azotowe Puławy – to what extent they want to exchange their shares for Azoty Tarnów shares. We should wait until we know this for sure, and only then will we get down to work within the Group.

Let us assume that Zakłady Azotowe Puławy will indeed be merged into the Azoty Group. It seems that your people will have a majority on the board of the survivor company as each of Tarnów, Kędzierzyn and Police will be represented by one board member, whereas Zakłady Azotowe Puławy – by three members. Your vote will be the deciding one. Is this reasoning correct?

It is not how we look at it. The process aimed at consolidating the Polish chemical industry began a couple of years ago. Zakłady Azotowe w Tarnowie Mościcach acquired the Kędzierzyn- and Police-based companies. We made an attempt to buy Anwil, but without success. Instead, we acquired two small-sized players: Fosfory of Gdańsk and Azoty Adipol. Today, the consolidation process is continuing and we are participating in it. The next step will be to merge the Azoty Tarnów Group and the Zakłady Azotowe Puławy Group, two giants with a total of PLN 11bn in revenues. Each of them has its own approach to doing business and its own corporate culture. Differences in corporate cultures are largely underestimated in Poland today, which is the most common reason why some consolidation processes end in a fiasco.  Under the Consolidation Agreement we have worked out a course of action to build a uniform, coherent culture to manage the gigantic conglomerate with production plants located in several towns across Poland. There are major social and economic issues involved. The plants are leading employers and key drivers of growth in their respective towns and regions. No wonder that shareholders, the state and the local communities expect a lot.  During the negotiations we established that investment in new solutions, designed to help us match up to and exceed competitors on international markets, will lie at the core of the Group's activities.  As members of the Group we need to set directions for development of the individual plants and for new investments. For instance, the biotech project that is being implemented in Puławy should be given particular attention. Other landmark deals include the power project and the petrochemical project signed between Azoty Tarnów and Grupa Lotos.
During the negotiations of the Consolidation Agreement we emphasised that Zakłady Azotowe Puławy should bring its extensive investment programme to completion.  This is essential if we want to remain efficient and improve efficiency in many areas.  To this end, however, a continuous flow of funding is required. In the past five years we have made outlays of more than one billion, two hundred million złoty of internally generated cash.

So, how big is this giant going to be versus European peers?

The Azoty Group will be the second largest fertiliser manufacturer in Europe and the leader in our region. We will certainly expand our offering. We will increase the output of caprolactam, which is used to make synthetic fibres found in clothes and car interiors. Our position is strong. The task for now is to set further directions for the individual plants.  In addition to the projects already mentioned, Zakłady Azotowe Puławy is involved in a number of others, including the power project. During the negotiations with Azoty Tarnów we stressed that Zakłady Azotowe Puławy needed to go on with its investment projects. This, however, requires financial resources.  Importantly, we have funded our projects with internally generated cash, and we are only planning to tap external sources of financing.

Is Zakłady Azotowe Puławy planning to participate in the Polish Investments programme?

It is an interesting option, and we intend to use funds received under the programme to build a new power plant, which costs around PLN 3bn. The project is a joint venture with Polska Grupa Energetyczna. Other projects will be financed internally.

Has building gas interconnectors with the Ukraine or exploring for shale gas crossed your mind?

It is with interest that we are following the shale gas projects in Poland, particularly those located in the Lublin region, which is just underneath Puławy on the map.  If the projects deliver interesting results, getting involved in shale gas production will be an option for us.

Could you share your thoughts on the agreement reached between PGNiG and Gazprom to reduce gas prices?

The recent price reduction is good news, especially that further reductions have been announced. Naturally, the lower the gas price the better for us. Plus we purchase the fuel from two sources, which is possible thanks to liberalisation of the Polish gas market. It is this freedom of choice that will be key to success of the future chemical group.

Your fertilisers are sold to customers in the agricultural sector. How do you see the future prospects for the sector?

I regard the view that agriculture-reliant economies are set to enjoy extensive growth as mistaken. Agricultural processes are supported by quality control and management systems, which are no different from those applied across the industrial sector. Increasing the efficiency of agricultural production and chemical production is equally difficult. I believe that Europe's industrial, agricultural and processing sectors should interface. Please note that our continent relies on imported food grown on 35 million hectares of land outside of Europe. Meanwhile, being self-sufficient in food production is high on the geopolitical agenda of the world's most powerful countries. It is the scarcity of food that sparked social unrest in many countries of North Africa and Middle East. The Noble prize winner Norman Borlaug once said that the most pressing problem is to feed the world's population, which is now 6.6 billion and growing. Without fertilisers, that goal is unattainable.

The interview is the transcript of a conversation held as part of the series "Salon Ekonomiczny Trójki i Dziennika Gazety Prawnej"