S E C R E T SECTION 01 OF 02 VILNIUS 001352

SIPDIS

STATE FOR EUR/NB, EUR/PRA (DLINNET, CRHODES), ISN/CPI,
EUR/SE

E.O. 12958: DECL: 12/29/2015
TAGS: ETTC LH MARR MCAP PREL LT IR CY
SUBJECT: NO SIGNS OF PROLIFERATION RISKS ASSOCIATED WITH
ACHEMA'S PURCHASE OF FERTILIZER PRODUCTION EQUIPMENT

REF: A. STATE 27651


B. NICOSIA 1861

C. NICOSIA 1893

Classified By: Economic Officer Scott Woodard, for reasons 1.4 (a) and
(d)


1. (S) SUMMARY: We discussed Achema's purchase of the
fertilizer production equipment described in reftels with
company representatives, and are reassured by what they told
us. Achema plans to relocate 90-95 percent of the purchased
equipment from Cyprus to its production facility in Lithuania
so that it can begin production of
nitrogen-phosphate-potassium (NPK) fertilizer. The company
determined that it is not economically advantageous to
transport the remaining 5-10 percent of the equipment, which
it plans to scrap in Cyprus. Achema's representative told us
it has no plans to sell or transfer any of the equipment to a
third country and that it had no knowledge that the equipment
might have been used to process phosphate ore from South
Africa with significant uranium content. END SUMMARY.

ACHEMA: LITHUANIA'S THIRD LARGEST COMPANY


2. (U) Achema, founded in the 1960s, has been publicly traded
on the Lithuanian stock exchange since 1994. Measured by
revenue, it is the third largest company in Lithuania (USD
520 million in revenues for 2004), and the largest producer
of nitrogen fertilizers in the Baltics. The company employs
some 1,200 people and produces resins, glues, and dyes in
addition to fertilizer and other industrial chemicals.
Achema is a member of the European Fertilizer Manufacturers
Association and the International Fertilizer Association.

OPENING A NEW PRODUCTION LINE


3. (S) We visited the Achema facility in Jonava, Lithuania
(approximately 120 km northwest of Vilnius) on December 29.
We spoke with the Achema's Technical Director Juozas
Tunaitis, who helped negotiate the deal to purchase the
fertilizer production equipment from Hellenic Industries in

Cyprus. Tunaitis met with us on short notice, less than 24
hours after we first contacted Achema.


4. (S) Tunaitis explained to us that Achema is purchasing the
fertilizer production equipment as part of the company's
plans to begin production of NPK fertilizer in mid-2007. He
said that Achema is currently only able to produce urea,
ammonium nitrate, and urea/ammonium nitrate fertilizers. He
said that his company's dependence on these production lines
left it vulnerable to market fluctuations. He added that
although the equipment was 20 years old, Hellenic Industries
had only operated it for about seven years, so much of it was
in good shape.


5. (S) Tunaitis told us that Achema plans to relocate 90-95
percent of the purchased equipment from Cyprus to Achema's
facility in Jonava. He said that it was not economically
advantageous to transport the remaining 5-10 percent because
it would be cheaper to purchase substitutes in Lithuania than
to transport it from Cyprus. He added that Achema plans to
scrap the 5-10 percent of equipment that it will not take to
Lithuania and that Hellenic Industries will be responsible
for the ultimate disposal of this leftover equipment.


6. (S) Tunaitis showed us the area where Achema will locate
the new production line, which is currently a square,
grass-covered lot, approximately 200 meters by 200 meters,
directly adjacent to a current production line. He said that
Achema will construct a new building to house the relocated
equipment.

ACHEMA NOT NEW TO USED EQUIPMENT


7. (S) Tunaitis said that Achema had purchased second-hand
equipment before, showing us a production facility that the
company had purchased in Germany and relocated to Lithuania.
He said that this facility had been up-and-running in Jonava
for two years and that it was the model for what Achema plans
to do with the Hellenic Industries equipment: transfer to
Lithuania the bulk of the equipment and scrap the rest
locally.


8. (S) Tunaitis also said that Achema is in final
negotiations with U.S.-based Louisiana Chemical, a
second-hand equipment dealer, to buy a urea production line
currently located at a facility in Italy. He expected Achema
to have this line installed and producing in Lithuania in the
spring of 2008.

NO KNOWLEDGE OF URANIUM-RICH PHOSPHATES

9. (S) Tunaitis said he was unaware of the possibility that
the Hellenic Industries equipment might have been used to
process South African phosphates with a high uranium content.
He said that he was not aware of the ability of the Hellenic
Industries equipment to process uranium or produce uranium
by-products.

NO CONNECTION TO THIRD COUNTRIES


10. (S) Tunaitis said that this deal did not involve any
third country, nor any companies operating in a third country.

COMMENT: NO INDICATION OF PROLIFERATION RISK


11. (S) Achema answered all of our questions directly,
promptly, and openly and gave us a very reasonable
explanation for its purchase of the equipment from Hellenic
Industries. While we admittedly have only a limited ability
to assess Achema's ultimate intentions or the capabilities of
the equipment in question, we can say that this blue-chip
company would be taking tremendous risks by engaging in
covert schemes to transfer dual-use equipment to Iran. We
see no signs indicating that Achema is prepared to take such
a risk, and we have every reason to believe that this is a
straightforward transaction based on legitimate business
interests.
KELLY