2 March 2006

New Application for Puławy’s Urea in Automotive Industry

On March 1st 2006, ZA Puławy S.A. signed a long-term agreement with Agro Baltic GmBH concerning distribution and marketing of 32.5% water urea solution. The agreement marks the opening of a new, priority area of ZAP’s activities. The agreement constitutes a strategic alliance. ZA Puławy, which plans to launch the production of 32.5% water urea solution before the end of this year, intends to develop with Agro Baltic their own distribution network for the product.

We do not want to limit our activities to production only, we also plan to create a market for our product and to control its distribution, disclosed Marcin Buczkowski, President of the Management Board of ZAP.

The 32.5% water urea solution, also known as AdBlue, can be used to purify tailpipe exhaust emissions from trucks equipped with Diesel engines, in which the Selective Catalytic Reduction system (SCR) is installed. The automotive industry is interested in this product, as new, stricter UE regulations concerning exhaust emissions from Diesel engines have been enacted. Under the UE directives, on October 1st 2006, new, stricter exhaust emission norms (Euro 4) come into force; these will be replaced by even stricter standards (Euro 5) on October 1st 2009. The new norms require that manufacturers of trucks heavier than 3.5 tonnes use the SCR technology, which consists in catalytic processing of exhaust gases by means of the AdBlue agent; the agent reduces NOx into non-toxic nitrogen and steam. The UE legislation requires that NOx emissions be reduced by 60%, while particulate matter (PM) emissions by at least 80%.

ZA Puławy SA is currently in the process of negotiating the terms and conditions of purchasing rights to the AdBlue trade mark. The ultimate objective of ZAP and Agro Baltic is to register their own trade mark.

We will begin our activities on the German market, says President Buczkowski, where special preferential systems are already contemplated. For instance, Euro-4-compliant trucks will receive a 20% toll discount on German motorways. Agro Baltic has been our long-term partner in the distribution of urea and ammonium nitrate solution on the German market. In our new alliance we would like to draw on the experience gained in building the distribution network for ammonium nitrate solution. Our strength lies in faultless logistics related to the distribution of ammonium nitrate solution and we will use it also for water urea solution.

To note, ZAP is a global leader on the liquid urea-ammonium nitrate solution market, controlling approx. 20% of the international trade in this product. 50% of shares in Agro Baltic GmbH are held by CMF (Common Market Fertilizers S.A.) - one of Europe’s leaders in distribution of fertilisers produced by companies based in Germany, France, Great Britain, Italy and Bulgaria.

This year will see construction and launch of a 32.5% water urea solution unit at ZAP, which will enable the Company to launch sales of first batches of the product already in the second half of 2006. ZAP’s strategic objective in this area - similarly as in the case of UAN today - is to become one of the leading players in this segment and gain a 1015% share in the European market where consumption in 2012 is estimated to be at least 2.5m tonnes. In cooperation with Agro Baltic, the Company will create a distribution network which is to eventually cover all of the European Union countries.

During the first stage of the project, we are planning to create, in cooperation with our partner, distribution centres, on locations operated by forwarding firms, to construct a distribution station in Germany next to the motorway to Berlin, and to create two large distribution centres with a storage capacity of several thousand tonnes, says Mr. Buczkowski. We will spend the coming months on developing detailed long-term marketing plans.

The launch of the project, which will enable the sales of ZAP-produced urea on new attractive markets, is another step made by the Company towards offsetting the adverse effect of the growing natural gas prices on its balance-sheet. Currently, ZA Puławy SA focuses on two projects related to the automotive industry, namely the AdBlue and the biodiesel projects.

ZA Puławy operates on three key product markets: Fertilisers for the agricultural sector (urea, ammonium nitrate, urea-ammonium nitrate solution, ammonium sulphate) – leading Polish and global producer Melamine (used in the production of synthetic resin which is applied in the furniture, paint and varnish market, as well as textile and paper sectors) – third largest producer in the world, the only producer in Poland Caprolactam (used for the production of textile and industrial fibres, carpeting and engineering resins used in automotive, electronic and food industries) – one of the two producers in Poland. ZA Puławy is the largest company in the fertilisers and chemical sector in Poland and an important producer in the world. Approximately half of its revenue is derived from the exports. For more information please contact: Marek Sieprawski ZA Puławy SA tel. (+ 48 81) 887 62 01 msieprawski@azoty.pulawy.pl