Hungarian fertiliser producer backs away from closure, takes legal action on special tax

The shutdown of Nitrogénművek

Two weeks ago, it was announced that Hungarian fertiliser producer Nitrogénművek's ["Nitrogen Works"] ammonia plant would shut down on 6 November. The official report at the time said that production would be halted for a month and the plant, one of Hungary's largest consumers of natural gas and therefore emitter of CO2, would restart on 6 December. But yesterday, owner-CEO László Bige said that, contrary to earlier reports, "the shutdown is not for a month, but indefinitely, and due to the drastic deterioration of the business environment, the company has no plans to restart, and will end its production activities after 93 years."

The July government decree created a very unpleasant situation for larger CO2 emitters, as the government introduced a very high extra tax of 40% on the free carbon dioxide quotas, which fundamentally destroyed the profitability of the companies concerned. In addition, the government decree introduced a 10% transaction fee on quota sales, which could cause challenges for the liquidity situation of companies. This decree was amended in early October by another decree, which reduced the special tax rate to 36%, but at the same time increased the transaction fee to 15%.

Shutdown...or maybe not so fast

CEO and owner László Bige admitted that the government decree imposing burdens on the allocation and sale of carbon dioxide quotas has put Nitrogénművek, Hungary's only fertiliser plant, in an impossible situation.

But the sole purpose of the tax on the carbon dioxide quota is to take our money by decree and give certain circles access to one of Hungary's most valuable private industrial companies,

said László Bige, according to an article published in Agrárszektor on Wednesday morning. When asked by the newspaper, the CEO did not give details of who this group includes.

He added that, in the opinion of the company's lawyers, taxing the EU carbon trading scheme is illegal.

Bige stressed that they would use all Hungarian and EU appeal forums to prove this.

He revealed that two very important law firms, a team based in Hungary and a team based in London, have been commissioned to work out the details.

We are convinced that the relevant government decree violates the principle of proportional public expenditure and the right to property, as the tax is disproportionate and confiscatory, and infringes the principle of non-retroactivity. Moreover, it also violates the principles and objectives of the European Union's Directive 2003/87/EC (the regulation that allocated carbon dioxide quotas in the European Union - ed.),

the businessman said.

He also pointed out that there have been attempts to introduce such a tax - on a much smaller scale - in three Member States, but

these attempts have failed in every case, and the European Commission has declared them illegal and abolished them.

I have no doubt that we will win this case in court,

said he.

Existing stocks to be sold out, the company is not for sale

He said that there are no plans to produce fertiliser at the plant at the moment, some of the existing stocks have already been sold and the rest will be sold at a final sale.

Bige said that he had no intention of dismissing the almost a thousand people who work at the Nitrogénművek plant:

We will not let our people go, otherwise we can never start again.

In response to a question from Agrárszektor, he said that he does not rule out the possibility of the Nitrogénművek becoming a fertiliser trader.

However, he completely ruled out selling the company,

saying that the company "could be sold at any time" because it is a "well-structured company".

Cover photo: Ákos Stiller/Bloomberg via Getty Images