C-821-825 Investigation Public Document E&C/OVIII: GA/WH

November 23, 2020

MEMORANDUM TO: Joseph A. Laroski Jr. Deputy Assistant Secretary for Policy and Negotiations

FROM: James Maeder Deputy Assistant Secretary for Antidumping and Countervailing Duty Operations

SUBJECT: Decision Memorandum for the Affirmative Preliminary Determination of the Countervailing Duty Investigation of Phosphate Fertilizers from the Russian Federation

I. SUMMARY

The Department of Commerce (Commerce) preliminarily determines that countervailable subsidies are being provided to producers and exporters of phosphate fertilizers from the Russian Federation (Russia), as provided in section 703 of the Tariff Act of 1930, as amended (the Act).

II. BACKGROUND

A. Case History

On June 26, 2020, Commerce received a countervailing duty (CVD) petition concerning imports of phosphate fertilizers from Russia, filed in proper form on behalf of the Mosaic Company (the petitioner).1 We describe the supplements to the Petition and our consultations with the Government of Russia (GOR) in the Initiation Checklist.2 On July 23, 2020, we published the initiation of a CVD investigation on phosphate fertilizers from Russia.3

On July 2, 2020, we released U.S. Customs and Border Protection (CBP) entry data under the Administrative Protective Order (APO), and requested comments regarding the data and

1 See Petitioner’s Letter, “Petitions for the Imposition of Countervailing Duties: Phosphate Fertilizers from Morocco and Russia,” dated June 26, 2020 (Petition). 2 See Initiation Checklist: Phosphate Fertilizers from the Russian Federation (Russia), dated July 16, 2020 (Initiation Checklist). 3 See Phosphate Fertilizers from the Kingdom of Morocco and the Russian Federation: Initiation of Countervailing Duty Investigations, 85 FR 44505 (July 23, 2020) (Initiation Notice).

respondent selection.4 We stated in the Initiation Notice that we intended to base our selection of mandatory respondents on CBP entry data for the Harmonized Tariff Schedule of the United States (HTSUS) subheadings listed in the scope of the investigation. On July 28, 2020, the petitioner filed comments on respondent selection.5 No other interested party submitted comments regarding respondent selection.

On August 4, 2020, we selected Industrial Group Phosphorite LLC (Phosphorite) (part of EuroChem Group) and PhosAgro-Cherepovets6 (part of PhosAgro PJSC) as the mandatory respondents in this investigation.7 On August 4, 2020, we issued a CVD questionnaire to the GOR, and requested that the GOR forward the questionnaire to the selected mandatory respondents.8 On August 18, 2020, we received an affiliation response from EuroChem Group and PhosAgro PJSC.9 On September 24, 2020, the GOR, EuroChem Group, and PhosAgro PJSC filed their respective responses to the countervailing duty questionnaire.10

Between August 28, 2020 and November 3, 2020, we issued supplemental questionnaires to the GOR, EuroChem Group, and PhosAgro PJSC, and the responses to these supplemental questionnaires were timely received between October 21, 2020 and November 12, 2020.11 On

4 See Memorandum, “Countervailing Duty Petition on Phosphate Fertilizers from Russia: Release of Customs Data from U.S. Customs and Border Protection,” dated July 2, 2020. 5 See Petitioner’s Letter, “Phosphate Fertilizers from Russia (C-821-825): Comments on U.S. Customs and Border Protection Data and Mandatory Respondent Selection,” dated July 28, 2020. 6 In the Respondent Selection Memo, we selected PhosAgro-Cherepovets as a mandatory respondent. See Memorandum, “Countervailing Duty Investigation of Phosphate Fertilizers from Russia: Respondent Selection,” dated August 4, 2020 (Respondent Selection Memo). However, PhosAgro PJSC reported that the company’s legal name is in fact Joint Stock Company Apatit (JSC Apatit). As such, we treated JSC Apatit as the mandatory respondent in this investigation. See PhosAgro PJSC’s Letter, “Countervailing Duty Investigation of Phosphate Fertilizers from Russia: PhosAgro PJSC Affiliate Questionnaire Response,” dated August 18, 2020 (PhosAgro Affiliation Response) at 5. 7 See Respondent Selection Memo. 8 See Commerce’s Letter, “Countervailing Duty Investigation of Phosphate Fertilizers from the Russian Federation: Countervailing Duty Questionnaire,” dated August 4, 2020 (Initial Questionnaire). 9 See EuroChem Group’s Letter, “Phosphate Fertilizers from Russian Federation,” dated August 18, 2020 (EuroChem Affiliation Response), and PhosAgro Affiliation Response. 10 See the GOR’s Letter, “Phosphate Fertilizers from the Russian Federation: Questionnaire Response of the Ministry of Economic Development of the Russian Federation,” dated September 24, 2020 (GOR Questionnaire Response); EuroChem Group’s Letter, “Phosphate Fertilizers from Russian Federation,” dated September 24, 2020 (EuroChem Questionnaire Response); and PhosAgro PJSC’s Letter, “Countervailing Duty Investigation of Phosphate Fertilizers from Russia,” dated September 24, 2020 (PhosAgro Questionnaire Response). 11 See the GOR’s Letters, “Phosphate Fertilizers from the Russian Federation: First Supplemental Questionnaire Response,” dated October 28, 2020 (GOR Supplemental Response), and “Phosphate Fertilizers from the Russian Federation: Second Supplemental Questionnaire Response,” dated November 12, 2020 (GOR 2nd Supplemental Response); EuroChem Group’s Letters, “Phosphate Fertilizers from Russian Federation,” dated August 28, 2020 (EuroChem Affiliation Supplemental Response), “Phosphate Fertilizers from the Russian Federation,” dated October 23, 2020 (EuroChem Supplemental Response), and “Russia Phosphate Fertilizers,” dated November 9, 2020 (EuroChem 2nd Supplemental Response); and PhosAgro PJSC’s Letters, “Countervailing Duty Investigation of Phosphate Fertilizers from Russia: PhosAgro PJSC Supplemental Affiliate Questionnaire Response,” dated August 28, 2020 (PhosAgro Affiliation Supplemental Response), “Countervailing Duty Investigation of Phosphate Fertilizers from Russia: PhosAgro PJSC Second Supplemental Affiliate Questionnaire Response,” dated September 9, 2020 (PhosAgro 2nd Affiliation Supplemental Response), “Countervailing Duty Investigation of Phosphate Fertilizers from Russia: PhosAgro PJSC Section III Supplemental Questionnaire,” dated October 21, 2020

2 November 2, 2020, we received benchmark data submissions from the petitioner, EuroChem Group, and PhosAgro PJSC.12 On November 13, 2020, the petitioner submitted pre-preliminary comments.13

B. Postponement of Preliminary Determination

On August 20, 2020, the petitioner requested that Commerce postpone the deadline for the preliminary determination.14 Commerce granted the petitioner’s request and, on September 2, 2020, published the notification of postponement of the preliminary determination, until November 23, 2020, in the Federal Register, in accordance with section 703(c)(1)(A) of the Act and 19 CFR 351.205(b)(2).15

C. Period of Investigation

The period of investigation (POI) is January 1, 2019, through December 31, 2019.

III. INJURY TEST

Because Russia is a “Subsidies Agreement Country” within the meaning of section 701(b) of the Act, the International Trade Commission (ITC) is required to determine whether imports of the subject merchandise from Russia materially injure, or threaten material injury to, a U.S. industry. On August 7, 2020, the ITC preliminarily determined that there is a reasonable indication that an industry in the United States is materially injured by reason of imports of phosphate fertilizers from Russia.16

(PhosAgro Supplemental Response), and “Countervailing Duty Investigation of Phosphate Fertilizers from Russia: PhosAgro PJSC Second Supplemental Section III Questionnaire Response,” dated November 6, 2020 (PhosAgro 2nd Supplemental Response). 12 See Petitioner’s Letter, “Phosphate Fertilizers from Russia: Petitioner’s Submission of Factual Information to Measure the Adequacy of Remuneration,” dated November 2, 2020 (Petitioner Benchmark Submission); and EuroChem Group and PhosAgro PJSC’s Letter, “Countervailing Duty Investigation of Phosphate Fertilizers from Russia: PhosAgro PJSC and Eurochem North America Corp. Benchmark Data Letter,” dated November 2, 2020 (Respondents Benchmark Submission). 13 See Petitioner’s Letter, “Phosphate Fertilizers from Russia: Pre-Preliminary Comments,” dated November 13, 2020. 14 See Petitioner’s Letter, “Phosphate Fertilizers from Russia: Petitioner’s Request for Postponement of the Preliminary Determination,” dated August 20, 2020. 15 See Phosphate Fertilizers from the Kingdom of Morocco and the Russian Federation: Postponement of Preliminary Determinations in the Countervailing Duty Investigations, 85 FR 54535 (September 2, 2020). 16 See Phosphate Fertilizers from Morocco and Russia, Investigation Nos. 701–TA–650-651(Preliminary), Publication 5105, August 2020; see also Phosphate Fertilizers from Morocco and Russia, 85 FR 49394 (August 13, 2020). 3 IV. SUBSIDIES VALUATION

A. Allocation Period

Commerce normally allocates the benefits from non-recurring subsidies over the average useful life (AUL) of renewable physical assets used in the production of subject merchandise.17 Commerce finds the AUL in this proceeding to be 10 years, pursuant to 19 CFR 351.524(d)(2) and the U.S. Internal Revenue Service’s 1977 Class Life Asset Depreciation Range System.18 Commerce notified the respondents of the AUL in the initial questionnaire and requested data accordingly. No party in this proceeding disputed this allocation period. Consistent with past practice, in order to appropriately measure any allocated subsidies, Commerce will use a 10-year AUL period in this investigation.19

Furthermore, for non-recurring subsidies, we applied the “0.5 percent test,” as described in 19 CFR 351.524(b)(2). Under this test, we divide the amount of subsidies approved under a given program in a particular year by the relevant sales value (e.g., total sales or export sales) for the same year. If the amount of the subsidies is less than 0.5 percent of the relevant sales value, then the benefits are allocated to the year of receipt rather than across the AUL.

B. Attribution of Subsidies

In accordance with 19 CFR 351.525(b)(6)(i), Commerce normally attributes a subsidy to the products produced by the company that received the subsidy. However, 19 CFR 351.525(b)(6)(ii)-(v) provides additional rules for the attribution of subsidies received by respondents with cross-owned affiliates. Subsidies to the following types of cross-owned affiliates are covered in these additional attribution rules: (ii) producers of the subject merchandise; (iii) holding companies or parent companies; (iv) producers of an input that is primarily dedicated to the production of the downstream product; or (v) an affiliate producing non-subject merchandise that otherwise transfers a subsidy to a respondent. Further, 19 CFR 351.525(c) provides that benefits from subsidies provided to a trading company which exports subject merchandise shall be cumulated with benefits from subsidies provided to the firm producing the subject merchandise that is sold through the trading company, regardless of affiliation.

According to 19 CFR 351.525(b)(6)(vi), cross-ownership exists between two or more corporations where one corporation can use or direct the individual assets of the other corporation(s) in essentially the same ways it can use its own assets. This standard will normally be met where there is a majority voting interest between two corporations or through common ownership of two (or more) corporations.20 The U.S. Court of International Trade (CIT) upheld Commerce’s authority to attribute subsidies based on whether a company could use or direct the

17 See 19 CFR 351.524(b). 18 See U.S. Internal Revenue Service Publication 946 (2019), “How to Depreciate Property,” at Table B-2: Table of Class Lives and Recovery Periods. 19 See Final Results of Countervailing Duty Administrative Reviews: Low Enriched Uranium from Germany, the Netherlands, and the United Kingdom, 70 FR 40000 (July 12, 2005) and accompanying Issues and Decision Memorandum (IDM) at Comment 4. 20 See, e.g., Countervailing Duties Final Rule, 63 FR 65348, 65401 (November 25, 1998) (CVD Preamble). 4 subsidy benefits of another company in essentially the same way it could use its own subsidy benefits.21

EuroChem Group

Phosphorite reported that it is engaged in the production of phosphate fertilizers within the EuroChem Group, a privately-owned international group of companies whose ultimate parent company is based in Switzerland.22 Phosphorite also reported that its cross-owned affiliates, EuroChem-BMU, LLC (BMU) and JSC Nevinnomyssky Azot (Nevinka), are producers of phosphate fertilizers.23 As producers of phosphate fertilizers, we requested that these companies provide a response to the section III questionnaire, which they did.24 Pursuant to 19 CFR 351.525(b)(6)(ii), for subsidies received by a cross-owned producer of subject merchandise, Commerce attributes the benefit received by either or both corporations to the products produced by both corporations, excluding the sales between the two corporations.25 Accordingly, pursuant to 19 CFR 351.525(b)(6)(ii), we are preliminarily attributing subsidies received by any of these three companies to their combined total sales, net of intercompany sales.26 However, we note that in its response, Phosphorite did not differentiate to whom it made the intercompany sales.27 As such, we intend to issue a supplemental questionnaire requesting that Phosphorite break down its intercompany sales by affiliated customer. Absent this breakdown, for this preliminary determination, we used Phosphorite’s total sales as part of the combined sales denominator for the appropriate companies.

Phosphorite also reported that Mineral and Chemical Company EuroChem, JSC (MCC EuroChem) is the holding and managing company for the Russian assets of EuroChem Group.28 As the Russian parent of Phosphorite, MCC EuroChem provided a section III questionnaire response.29 Pursuant to 19 CFR 351.525(b)(6)(iii), for subsidies received by a holding or parent company, Commerce attributes the benefit to the combined sales of the holding company and its subsidiary, excluding the sales between the two corporations.30 Accordingly, pursuant to 19 CFR 351.525(b)(6)(iii), we would normally attribute subsidies received by MCC EuroChem to its total sales plus the combined total sales of Phosphorite, BMU, and Nevinka, net of intercompany sales. However, MCC EuroChem did not report receiving any subsidies during

21 See Fabrique de Fer de Charleroi, SA v. United States, 166 F. Supp. 2d 593, 600-604 (CIT 2001). 22 See EuroChem Affiliation Response at 3 and Exhibit 2; see also EuroChem Questionnaire Response at 9-10. 23 See EuroChem Affiliation Response at 7. 24 See EuroChem Affiliation Supplemental Response at 1; see also EuroChem Questionnaire Response at 5-6. 25 See, e.g., High Pressure Steel Cylinders from the People’s Republic of China: Final Results of Countervailing Duty Administrative Review; 2017, 84 FR 71373 (December 27, 2019) (China Cylinders), and accompanying IDM at Comment 3. 26 For the denominators used in the preliminary calculations, see Memorandum “Countervailing Duty Investigation of Phosphate Fertilizers from the Russian Federation: Preliminary Determination Calculations for EuroChem Group,” dated concurrently with this memorandum (EuroChem Preliminary Calculation Memo). 27 See EuroChem 2nd Supplemental Response at 1 and Exhibit 3-1. 28 See EuroChem Affiliation Response at 3. 29 See EuroChem Questionnaire Response at 5-6. 30 See, e.g., Certain Carbon and Alloy Steel Cut-to-Length Plate from the People’s Republic of China: Final Results of Countervailing Duty Expedited Review, 83 FR 34115 (July 19, 2018) (China CTL Plate), and accompanying IDM at Comment 3. 5 the POI or AUL period.31

Phosphorite reported that it received inputs from several EuroChem Group cross-owned affiliates to produce subject merchandise: ammonia and nitric acid from NAK Azot, JSC (NAK Azot); ammonia from EuroChem Northwest, JSC (EuroChem NW); phosphate rock from Joint Stock Company Kovdorksy GOK (KGOK); and energy from EuroChem-Energo, LLC (Energo).32 In addition, Phosphorite reported that EuroChem-Usolsky Potash Complex, LLC (UKK) supplied potash inputs for phosphate fertilizer production to other cross-owned affiliates, BMU and Nevinka.33 Therefore, in accordance with Commerce’s questionnaire, these companies provided a response to the section III questionnaire.34 Pursuant to 19 CFR 351.525(b)(6)(iv), for subsidies received by an input supplier whose production of inputs is primarily dedicated to the production of the downstream product by a cross-owned producer, Commerce attributes the benefit to the combined sales of the input and downstream products produced by both corporations, excluding the sales between the two corporations. Accordingly, pursuant to 19 CFR 351.525(b)(6)(iv), we are preliminarily attributing subsidies received by these companies to their total sales plus the combined total sales of Phosphorite, BMU, and Nevinka, net of intercompany sales.35

Finally, Phosphorite also reported that EuroChem Trading Rus, LLC (Trading Rus) is an export trading company that sells phosphate fertilizers.36 As such, we requested that Trading Rus provide a response to the section III questionnaire, which it did.37 Pursuant to 19 CFR 351.525(c), we would normally cumulate any benefits from subsidies provided to Trading Rus with benefits from subsidies provided to Phosphorite. Further, we would normally attribute subsidies received by Trading Rus to its total sales plus the combined total sales of Phosphorite, BMU, and Nevinka, net of intercompany sales. However, Trading Rus did not report receiving any subsidies during the POI or AUL period.38

PhosAgro PJSC

JSC Apatit reported that it is engaged in the production of phosphate fertilizers at its facilities in Cherepovets, Balakovo, and Volkhov, and in the production of phosphate rock at its facilities in Kirovsk.39 JSC Apatit confirmed that these four facilities comprised a single legal entity.40 JSC Apatit also stated that it merged with its cross-owned affiliate JSC Metachem during the POI to form its Volkhov branch.41 As such, we included JSC Metachem’s sales in the total sales denominator for JSC Apatit. In addition, JSC Apatit reported several cross-owned affiliated regional sales offices selling phosphate fertilizers produced by JSC Apatit in the domestic market: PhosAgro‐Belgorod LLC, PhosAgro‐Don LLC, PhosAgro‐Kuban LLC, PhosAgro‐

31 See, generally, EuroChem Questionnaire Response. 32 See EuroChem Affiliation Response at 3. 33 See EuroChem Supplemental Affiliation Response at 2. 34 See EuroChem Questionnaire Response at 5-6. 35 For the denominators used in the preliminary calculations, see EuroChem Preliminary Calculation Memo. 36 See EuroChem Affiliation Response at 7. 37 See EuroChem Affiliation Supplemental Response at 1; see also EuroChem Questionnaire Response at 5-6. 38 See, generally, EuroChem Questionnaire Response. 39 See PhosAgro Affiliation Response at 5-6; see also PhosAgro Questionnaire Response at 1. 40 See PhosAgro Affiliation Supplemental Response at 4. 41 See PhosAgro Affiliation Response at 2 and 8. 6 Kursk LLC, PhosAgro‐Lipestk LLC, PhosAgro‐Orel LLC, PhosAgro‐Stavropol LLC, PhosAgro‐ Volga LLC, PhosAgro‐SeveroZapad LLC, PhosAgro‐Tambov LLC, and Martynovsk AgrokhimSnab LLC.42 As we requested, these companies provided a response to the section III questionnaire.43 Pursuant to 19 CFR 351.525(b)(6), for subsidies received by a cross-owned seller of subject merchandise, Commerce attributes the benefit received by either or both corporations to the products produced by both corporations, excluding the sales between the two corporations.44 Accordingly, pursuant to 19 CFR 351.525(b)(6), we are preliminarily attributing subsidies received by all of the above-mentioned companies to their combined total sales, net of intercompany sales.45

JSC Apatit reported that PhosAgro PJSC is a public joint stock holding company that owns shares of companies involved in the production and sale of phosphate fertilizers, such as JSC Apatit.46 As the parent of JSC Apatit, PhosAgro PJSC provided a section III questionnaire response.47 Pursuant to 19 CFR 351.525(b)(6)(iii), for subsidies received by a holding or parent company, Commerce attributes the benefit to the combined sales of the holding company and its subsidiary, excluding the sales between the two corporations.48 Accordingly, pursuant to 19 CFR 351.525(b)(6)(iii), we would normally attribute subsidies received by PhosAgro PJSC to its total sales plus the sales of all the above-mentioned cross-owned affiliates , net of intercompany sales. However, PhosAgro PJSC did not report receiving any subsidies during the POI or AUL period.49

C. Denominators

When selecting an appropriate denominator for use in calculating the ad valorem subsidy rate, Commerce considers the basis for the respondents’ receipt of benefits under each program. As discussed in further detail below in the “Programs Preliminarily Determined to be Countervailable” section, where the program has been found to be countervailable as a domestic subsidy, we used the recipient’s total sales as the denominator. Similarly, where the program has been found to be countervailable as an export subsidy, we used the recipient’s total export sales as the denominator. All sales used in our net subsidy rate calculations are net of intra-company sales. In the sections below, we describe the denominators we used to calculate the countervailable subsidy rates for the various subsidy programs.

42 See PhosAgro Affiliation Response at Exhibit 1; see also PhosAgro Questionnaire Response at 1-2. 43 See PhosAgro Affiliation Supplemental Response at 18; see also PhosAgro 2nd Affiliation Supplemental Response at 8; and PhosAgro Questionnaire Response at 1-2. 44 See, e.g., China Cylinders IDM at Comment 3. 45 For the denominators used in the preliminary calculations, see Memorandum “Countervailing Duty Investigation of Phosphate Fertilizers from the Russian Federation: Preliminary Determination Calculations for PhosAgro PJSC,” dated concurrently with this memorandum (PhosAgro Preliminary Calculation Memo). 46 See PhosAgro Affiliation Response at 4 and 7. 47 Id. at 6. 48 See, e.g., China CTL Plate IDM at Comment 3. 49 See, generally, PhosAgro Questionnaire Response. 7 V. BENCHMARKS AND INTEREST RATES

A. Loan Benchmarks and Interest Rates

Section 771(5)(E)(ii) of the Act states that the benefit for loans is the “difference between the amount the recipient of the loan pays on the loan and the amount the recipient would pay on a comparable commercial loan that the recipient could actually obtain on the market,” indicating that a benchmark must be a market-based rate. In addition, 19 CFR 351.505(a)(3)(i) stipulates that when selecting a comparable commercial loan that the recipient “could actually obtain on the market” Commerce will normally rely on actual loans obtained by the firm. However, when there are no comparable commercial loans, Commerce “may use a national average interest rate for comparable commercial loans,” pursuant to 19 CFR 351.505(a)(3)(ii).

1. Long-Term Russian Ruble-Denominated Loans

Phosphorite, NAK Azot, and Nevinka reported that they had outstanding long-term ruble- denominated loans from the Russian Fund for Technological Development (RFTD) during the POI.50 As noted above, as benchmarks for subsidies in the form of long-term loans, we typically use, where available, the company-specific interest rates on the company’s comparable commercial loans.51 EuroChem Group provided information about its long-term loans from commercial banks for consideration as comparable commercial loans for purposes of identifying an interest rate benchmark.52 We preliminarily determine that a loan EuroChem Group identified in its response constitutes a comparable commercial loan, and it is appropriate to use this loan as a comparable benchmark interest rate, pursuant to 19 CFR 351.505(a)(2)(iii).53

B. Input Benchmarks

We selected benchmarks for determining the benefit from the provision of natural gas for less than adequate remuneration (LTAR) in accordance with the methodology described in 19 CFR 351.511(a)(2), which sets forth the basis for identifying appropriate market-determined benchmarks for determining whether a government good or service is provided for LTAR. These potential benchmarks are listed in hierarchical order by preference: (1) market prices from actual transactions within the country under investigation (e.g., actual sales, actual imports or competitively run government auctions) (tier one); (2) world market prices that would be available to purchasers in the country under investigation (tier two); or (3) an assessment of whether the government price is consistent with market principles (tier three).54

As discussed in the “Analysis of Programs” section below, in accordance with an analysis conducted pursuant to “tier three” of the LTAR benchmark hiearachy, we are relying on market- determined prices for natural gas as benchmarks for this program. We received data submissions

50 See EuroChem Questionnaire Response at 43 and Exhibits PQ-E4, PQ-E4.1, and PQ-E5. 51 See 19 CFR 351.505(a)(3). 52 See EuroChem Questionnaire Response at Exhibit PQ-E3; see also EuroChem Supplemental Response at 15. 53 See EuroChem Preliminary Calculation Memo. 54 See 19 CFR 351.511(a)(2). 8 from the petitioner, EuroChem Group, and PhosAgro PJSC for natural gas.55 The petitioner submitted several exhibits containing natural gas and energy prices and imports from the OECD and EU countries, as well as information about Public Joint Stock Company Gazprom (Gazprom), the largest natural gas supplier in Russia.56 The respondents submitted a confidential benchmark study on the cost of Russian natural gas, the International Gas Union’s 2020 wholesale gas prices, Russian gas tariffs and prices, and Novatek’s 2019 annual report.57 For a detailed explanation of the benchmarks used in the calculations of the “Natural Gas for LTAR” program, see below and the respondents’ calculation memoranda.58

VI. ANALYSIS OF PROGRAMS

Based upon our analysis and the responses to our questionnaires, we preliminarily determine the following:

A. Programs Preliminarily Determined to Be Countervailable

1. Provision of Natural Gas for LTAR

Commerce is investigating whether Russian producers of phosphate fertilizers received countervailable subsidies by purchasing natural gas from Gazprom for LTAR during the POI. EuroChem Group reported that Phosphorite and its cross-owned affiliates Nevinka, NAK Azot, BMU, UKK, EuroChem NW, and Energo purchased natural gas from Gazprom and its regional affiliates during the POI.59 PhosAgro PJSC reported that JSC Apatit and several of its cross- owned affiliates purchased natural gas from Gazprom or its affiliates during the POI.60

The mandatory respondents reported purchases of natural gas from several entities during the POI, including direct purchases from natural gas producers Gazprom and its affiliates, Public Joint Stock Company Novatek (Novatek), Oil Company Rosneft, Public Joint Stock Company (Rosneft), and purchases by auction on the Saint Petersburg International Commodity Exchange (SPIMEX). Given the information provided by the GOR, we preliminarily find that Novatek is a private entity without GOR ownership or control, and therefore have excluded the respondents’ purchases of natural gas from Novatek from our calculations.61 There is conflicting evidence on the record regarding the GOR’s authority over Rosneft and we do not have sufficient record evidence to preliminarily determine whether the company is an authority for purposes of finding a financial contribution. Therefore, we are not including purchases from Rosneft in our preliminary subsidy rate calculations, but we will seek more information after the preliminary determination for use in the final determination.

The GOR reported that Gazprom is majority-owned by the government, with the Federal Agency

55 See Petitioner Benchmark Submission and Respondents Benchmark Submission. 56 See Petitioner Benchmark Submission at Exhibits 14-23b. 57 See Respondents Benchmark Submission at Appendices 2-6. 58 See EuroChem Preliminary Calculation Memo and PhosAgro Preliminary Calculation Memo. 59 See EuroChem Supplemental Response at 8. 60 See PhosAgro Questionnaire Response at 25. 61 See GOR Questionnaire Response at Exhibit III-54. 9 for State Property Management holding 50.23 percent of Gazprom’s shares.62 Given its majority-ownership of Gazprom, we preliminarily determine that the GOR, as Gazprom’s largest shareholder, is able to control decisions at the meeting of General Shareholders, which elects the board of directors that consists of 11 members.63 In that regard, the GOR stated that,

In certain cases, representatives of the interests of the Russian Federation on the Board of Directors of PJSC Gazprom vote on agenda items only on the basis of directives issued by the Government of the Russian Federation. In accordance with the Regulations on the Management of Federally Owned Shares of Joint Stock Companies and the Use of the Special Right of the Russian Federation to Participate in the Management of Joint Stock Companies (“Golden Share”), approved by Decree of the Government of the Russian Federation No 738 dated December 3, 2004, the Government of the Russian Federation issues directives to representatives of the interests of the Russian Federation on the board of directors of joint-stock companies for voting.64

Further, the record shows that Gazprom’s Chairman of the Board of Directors is a former Prime Minister and a former First Deputy Prime Minister of the Russian Federation.65 Additionally, several other current and former government officials hold positions on Gazprom’s board of directors.66

Additional record evidence demonstrates the strategic importance of Gazprom to the GOR. The Decree of the President of the Russian Federation N 1009 of August 4, 2004, states that:

On approval of the list of strategic enterprises and strategic joint companies, the PJSC Gazprom is included in the list of the joint stock companies, the shares of which are in federal ownership and the participation of the Russian Federation in the management of which ensures the strategic interests, defense capability and security of the state, protection of morality, health, rights and legitimate interests of citizens of the Russian Federation.”67

Gazprom’s designation as a “strategic enterprise” demonstrates that the company plays a critical, strategic role in Russia and is considered important to achieve important governmental policy objectives. Furthermore, the fact that the GOR “ensures the strategic interest” of the state through its ownership and participation “in the management” of Gazprom demonstrates that the GOR has meaningful, operational control over Gazprom.

In addition to the GOR’s control of Gazprom through its majority-ownership, the government, through the Federal Antimonopoly Service (FAS) sets the prices for the natural gas produced and

62 See GOR Questionnaire Response at 41. 63 Id. at Exhibit III-44 at Note 1. Under Gazprom’s Articles of Association, shareholders are authorized to vote, commensurate with their shareholding. See also Russia Cold-Rolled Steel Final IDM comment 1. 64 Id. at 62. 65 Id. at Exhibit III-47 (Gazprom’s 2019 Annual Report) at 41. 66 Id. at 41-43. 67 See GOR Questionnaire Response at 58 (emphasis added). 10 supplied by Gazprom and its affiliates for all consumers in the domestic market, including industrial consumers and households.68

Record evidence, therefore, demonstrates that the GOR has meaningful control of Gazprom and that the company pursues governmental policy objectives through Gazprom’s businesses and operations. As a result, Gazprom possesses, exercises, and is vested with governmental authority. On this basis, consistent with Russia Cold-Rolled Steel, we preliminarily determine Gazprom to be an authority within the meaning section 771(5)(B)(i) of the Act and, as a result, that natural gas sold by Gazprom to the respondents constitutes a financial contribution within the meaning of section 771(5)(D)(iii) of the Act.69

As noted above, EuroChem reported that certain purchases of natural gas during the POI were made by EuroChem-Energo, a cross owned affiliate, via the SPIMEX.70 EuroChem reported that it does not know the producer of the gas it has purchased at auction. The GOR described the SPIMEX as a natural gas auction exchange where the prices are unregulated and carried out based on anonymous bids for sale and purchase.71 The GOR also stated that “the buyer and the seller do not know the names of each other when they propose their prices for purchase and sale, so the seller and buyer cannot choose each other by their names.”72 The GOR further explained that the the prices formed in exchange trading are used by independent gas suppliers as indicators reflecting seasonal fluctuations in demand and changes in market conditions.73

The GOR reported that a vast majority of the gas provided to and sold at the SPIMEX is from PJSC Gazprom or its affiliates.74 Additionally, “PJSC Gazprom analyzes the bids of the sellers and sets the volumes of gas allowed for sale at the auctions for the next month.”75 With respect to the purchase of natural gas at auction on the SPIMEX, the record does not contain sufficient information to demonstrate the precise source of these purchases, i.e., whether they are from Gazprom or from other entities that may be privately owned. However, as noted above, the record indicates that a vast majority of the natural gas auctioned on the SPIMEX is from Gazprom or its affiliates. Therefore, we preliminarily determine that it is reasonable to infer that EuroChem’s purchases of natural gas via the SPIMEX are from Gazprom and that sales of natural gas from the SPIMEX provide a financial contribution within the meaning section 771(5)(D)(iii) of the Act. Commerce has therefore preliminarily included purchases of natural gas from the SPIMEX in the calculations of the benefit received by EuroChem under the Natural Gas for LTAR program in the same manner as all other purchases of natural gas from Gazprom during the POI.

Further, because Gazprom or its affiliates account for a predominant share of natural gas sold at

68 See GOR Questionnaire Response at 65 69 See Countervailing Duty Investigation of Certain Cold-Rolled Steel Flat Products from the Russian Federation: Final Affirmative Countervailing Duty Determination and Final Negative Critical Circumstances Determination, 81 FR 49935 (July 29, 2016), and accompanying IDM at Comment 1 (Russia Cold-Rolled Steel). 70 See EuroChem Questionnaire Response at Exhibit PQ-A11. 71 See GOR 2nd Supplemental Response at 2; See also GOR Supplemental Response at 17. 72 See GOR 2nd Supplemental Response at 2. 73 See GOR Questionnaire Response at 51. 74 See GOR Supplemental Response at 13. 75 Id. at 17. 11 auction, we preliminarily determine that Gazprom, in effect, is the price setter of the SPIMEX auction prices. We therefore also preliminarily determine that any natural gas prices stemming from the SPIMEX are effectively determined by Gazprom, and do not reflect market forces and are thus not suitable as benchmarks.

With regard to specificity, we preliminarily determine that there is no evidence on the record indicating that Gazprom sells natural gas to the phosphate fertilizer industry in a manner that is de jure specific, as described under section 771(5A)(D)(i) of the Act. Concerning de facto specificity under section 771(5A)(D)(iii) of the Act, we requested purchase data (volume and value) for natural gas by industrial classification during the POI.76 The GOR reported that it does not maintain statistics on industrial consumers that purchase natural gas.77 However, in the first supplemental questionnaire response, the GOR reported that in 2019 the fertilizer industry consumed 4.7 percent of Russia’s total gas consumption.78 In the second supplemental questionnaire, we requested that the GOR submit alternate data which could be used to evaluate natural gas purchases based on the statistics that the GOR does maintain.79 In its supplemental response, the GOR again stated that it does not maintain such volume and value purchase data and referred us to Gazprom’s 2019 annual report, which includes information on Gazprom’s domestic natural gas sales, as an alternative data source.80

The GOR reported that according to Gazprom’s data on the volumes of gas transported via its pipeline system in 2019 (which includes the volume of supply of gas produced by PJSC Gazprom and its affiliates, as well as gas purchased from independent producers), natural gas is heavily used in the agro-chemistry sector and indicates that agro-chemistry was in the top natural gas consuming groups for 2019.81 No other specific industrial sectors are listed in the top consuming groups for 2019. The agrochemical industrial sector accounted for the largest percentage of total domestic natural gas sales among industrial groups for 2019.82 We note that the agrochemical industry’s share of natural gas consumption is likely understated because it is calculated on the basis of data that also includes non-manufacturing sectors such as households, electricity (utilities), and communal services, which comprise a combined majority percentage of total natural gas consumption. Therefore, we compared the agrochemical industry with the next three largest industries’ consumption of natural gas (each accounting for a small percentage, each less than half that of the agro-chemical industry) and to the “other” category of natural gas consumption during 2019.83 The “other” category includes gas consumers from all industries and sectors, and because the proportion of consumption for each group is insignificant, more detailed information is not collected by Gazprom. This comparison indicates that the agro- chemistry industry is a predominant consumer of natural gas when compared to other industrial sectors. On the basis of these facts, which show that the predominant user of natural gas is a

76 See Initial Questionnaire at Section II – Provision of Natural Gas for LTAR (Questions Regarding the Natural Gas Industry, question 8). 77 See GOR Questionnaire Response at 56. 78 See GOR Supplemental Response at 11. 79 See Commerce’s Letter, “Countervailing Duty Investigation of Phosphate Fertilizers from the Russian Federation: 2nd Section II Supplemental Questionnaire,” dated November 3, 2020, at questions 4-6. 80 See GOR 2nd Supplemental Response at 4-8. 81 Id. at 6. 82 Id. 83 Id. 12 group of industries that includes agro-chemistry (which in turn includes the Russian phosphate fertilizers industry), we preliminarily determine that the provision of natural gas by Gazprom is de facto specific under section 771(5A)(D)(iii)(II) of the Act.

In order to determine the existence and amount of any benefit conferred by Gazprom to Phosphorite, JSC Apatit, and their respective cross-owned affiliates, pursuant to section 771(5)(E)(iv) of the Act, we followed the methodology described in 19 CFR 351.511(a)(2) to identify a suitable benchmark for natural gas. Under 19 CFR 351.511(a)(2), Commerce sets forth the basis for identifying appropriate market-determined benchmarks for measuring the adequacy of remuneration for government-provided goods or services. These potential benchmarks are listed in hierarchical order by preference: (1) market prices from actual transactions within the country under investigation (e.g., actual sales, actual imports or competitively run government auctions) (tier one); (2) world market prices that would be available to purchasers in the country under investigation (tier two); or (3) an assessment of whether the government price is consistent with market principles (tier three). As provided in our regulations, the preferred benchmark in the hierarchy is an observed market price from actual transactions within the country under investigation. This is because such prices generally would be expected to reflect most closely the prevailing market conditions of the purchaser under investigation.

Based on the hierarchy, we must first determine whether there are market prices from actual sales transactions that can be used to determine whether Gazprom sold natural gas to the respondents for LTAR. Notwithstanding the regulatory preference for the use of prices stemming from actual transactions in the country, where Commerce finds that the government provides the majority, or a substantial portion of, the market for a good or service, prices for such goods and services in the country will be considered significantly distorted and will not be an appropriate basis of comparison for determining whether there is a benefit. This is because where the government’s role as provider of the good or service is so predominant, it in effect determines the prices for private sellers of the same or similar goods or services such that comparing the government prices to those or private prices would amount to comparing the financial contribution to itself.84

The GOR provided data on the total volume of domestic production of natural gas and the total volume of domestic production that is attributable to companies in which the government maintains direct or indirect ownership/management interest.85 The percentage of domestic production of natural gas which was attributable to such companies was a substantial proportion of the total market for 2017, 2018, and 2019.86 Gazprom alone accounted for a majority of the natural gas production in each of these years87 and, therefore, it is reasonable to conclude that

84 See CVD Preamble, 63 FR at 65377 (“Where it is reasonable to conclude that actual transaction prices are significantly distorted as a result of the government’s involvement in the market, we will resort to the next alternative in the hierarchy”); see also Notice of Final Affirmative Countervailing Duty Determination and Final Negative Critical Circumstances Determination: Certain Softwood Lumber Products from Canada, 67 FR 15545 (April 2, 2002) (Softwood Lumber from Canada) and accompanying IDM at 38-39. 85 See GOR Questionnaire Response at 42-44. 86 Id., where “Total Domestic Production by Government Entities” divided by Total Domestic Production results in the Percentage of Total Domestic Production by Government Entities. 87 Id. 13 Gazprom accounts for “a substantial portion of the market.”88 According to its 2019 annual report, Gazprom alone produced 68 percent of the natural gas consumed in Russia in 2019, which represents a predominant market share.89 Through its predominant role as a supplier of natural gas in the market and monopoly over transportation of natural gas, Gazprom has sufficient market power to effectively determine the prices of private suppliers of natural gas in Russia. As we explained in Softwood Lumber from Canada:

Where the market for a particular good or service is so dominated by the presence of the government, the remaining private prices in the country in question cannot be considered to be independent of the government price. It is impossible to test the government price using another price that is entirely, or almost entirely, dependent upon it. The analysis would become circular because the benchmark price would reflect the very market distortion which the comparison is designed to detect.90

The GOR also stated that the domestic natural gas market is divided into a “regulated” market and an “unregulated” market.91 The record shows that the regulated market, in which Gazprom operates, accounts for a majority of the domestic natural gas market.92 Further, the record shows that domestic consumption needs are met by domestic production, as only two percent of domestic consumption is derived from imports of natural gas into Russia.93

In addition, the GOR reported that there were VAT and import tarrifs of 20 percent and five percent, respectively, in place during the POI.94 The GOR also reported that an export customs duty of 30 percent is applicable on natural gas, and that export licenses are required for the export of natural gas.95 The GOR further reported that, pursuant to Article 3 of the Federal Law N 117-FZ of July 18, 2006, “On Export of Gas,” Gazprom holds the exclusive rights to transport and export natural gas via pipeline; thus, Gazprom enjoys a “natural monopoly” over natural gas transportation.96

Based on this record evidence, we preliminarily determine that the market for natural gas is distorted through the GOR’s predominant role in the market via Gazprom, and through other interventions in the market, in particular its controls on imports and exports of natural gas.

For these reasons, we preliminarily determine that actual transaction prices for natural gas in Russia cannot be used as a tier-one benchmark pursuant to 19 CFR 351.511(a)(2)(i), because they reflect the significant distortion resulting from the government’s involvement in the market, as discussed above. On this basis, we find that prices stemming from private, domestic suppliers of natural gas within Russia, such as the prices of Novatek, a private Russian natural gas

88 See CVD Preamble, 63 FR at 65377. 89 See GOR Questionnaire Response at Exhibit III-47 page 28. 90 See Softwood Lumber from Canada IDM 38-39. 91 See GOR Questionnaire Response at 47. 92 Id. at 42-44. 93 Id. at 43 94 Id. at 54. 95 Id. at 54-55. 96 Id. at 55 and 57. 14 company, which was submitted by the respondents who advocate the use of a tier-one benchmark, cannot be considered to meet the statutory and regulatory requirement for the use of market-determined prices to measure the adequacy of remuneration.97

Because there are no viable “tier-one” benchmarks for our analysis, we next examined whether there are any prices on the record that are suitable for use under “tier two” of the hierarchy. Under 19 CFR 351.511(a)(2)(ii), if there is no useable market-determined price with which to make the comparison under “tier one,” the government price is compared to a world market price where it is reasonable to conclude that such price is available to purchasers in the country in question, in this case Russia.

On the record is the following natural gas pricing information for countries outside of Russia: OECD natural gas prices and taxes sourced from the International Energy Agency (IEA), placed on the record by the petitioners.98

In Rebar from Turkey, Commerce refrained from including natural gas prices from the United States because they represented prices that would not be available to purchasers in Turkey.99 Consistent with Rebar from Turkey, in this investigation, we preliminary determine that natural gas export prices from markets in North America, South America, Africa, and Australia are not useable for benchmarking purposes under tier two of the hierarchy because they represent prices for natural gas that would not be available to purchasers in Russia.

With respect to natural gas export prices from Europe and Asia, in Russia Cold-Rolled Steel, Commerce found at verification of Gazprom that:

We confirmed, through an examination of pipeline schematics, which illustrate the direction of gas streams, that none of the pipelines are bi-directional. The pipelines are not fitted with the necessary compressors to allow an inflow of gas from Europe or Asia. The schematics also indicate that the direction of the pipelines exclude the possibility of gas supply from Central and Western parts of Europe, the Middle East, and the East/Asian-Pacific region.100

Based on Commerce’s findings in Russia Cold-Rolled Steel, for which there is no contradictory evidence on this record, we conclude that the European natural gas export prices provided by the petitioner to derive the tier two benchmark prices do not reflect prices available to Russian purchasers. Therefore, those market prices do not meet the standard set by 19 CFR 351.511(a)(2)(ii), which states that the adequacy of remuneration will be measured by comparing the government price to a world market price where it would be reasonable to conclude that such price would be available to purchasers in the country in question.

97 See Respondents Benchmark Submission. 98 See Petitioner Benchmark Submission and Respondents Benchmark Submission. 99 See Steel Concrete Reinforcing Bar from the Republic of Turkey: Final Affirmative Countervailing Duty Determination and Final Affirmative Critical Circumstances Determination, 79 FR 54963 (September 15, 2014) (Rebar from Turkey) and accompanying IDM at “Provision of Natural Gas for LTAR.” 100 See Russia Cold-Rolled Steel IDM at Comment 5. 15 Under the final alternative in the benchmark hierarchy, set forth under 19 CFR 351.511(a)(2)(iii), Commerce will normally determine whether the government price is consistent with market principles.101 In the Russia Cold-Rolled Steel case, Commerce concluded that Gazprom’s prices are not set in a manner that is consistent with market principles. Citing to statements in the Gazprom annual reports we specifically found that “{t}he existing gas market model has a number of fundamental flaws that prevent further competition, including high share of the regulated segment in the gas market, unsustainable wholesale prices, and interregional cross- subsidies affecting regional gas pricing.”102 We also found that “{t}he meeting emphasized {sic} that Gazprom, being the biggest gas supplier to the Russian market, sold the bulk of its gas supplies at regulated prices, which were set at below the sustainable level to bolster the national economy.”103

Commerce found that these and other similar statements which “referenced ‘fundamental flaws’ and a lack of competition in the market, in addition to ‘artificially low regulated prices’ and stalled ‘progress towards fair gas pricing’” demonstrated that Gazprom’s prices were not set in a manner that is consistent with market principles.104 We concluded that “these admissions by Gazprom which disclose that prices are ‘set at below the sustainable level to bolster the national economy’ further demonstrate that the natural gas prices are not based on market principles, but rather on the government’s social and economic development goals.”105

Evidence on the record of this proceeding demonstrates that the systemic fundamentals of Gazprom’s price setting have not changed. As discussed above, Gazprom continues to sell the bulk of its gas supplies at regulated prices which are set to “ensure the strategic interests, defense capability and security of the state, protection of morality, health, rights and legitimate interests of citizens of the Russian Federation.”106 This shows that Gazprom’s prices continue to be set based on the government’s social and economic development goals rather than market principles.

Furthermore, statements from Gazprom’s 2019 annual report confirm that the Russian gas market has yet to abandon domestic market price regulation in favor of developing market-based

101 See CVD Preamble, 63 FR at 65378 (“Paragraph (a)(2)(iii) provides that, in situations where the government is clearly the only source available to consumers in the country, we normally will assess whether the government price was established in accordance with market principles. Where the government is the sole provider of a good or service, and there are no world market prices available or accessible to the purchaser, we will assess whether the government price was set in accordance with market principles through an analysis of such factors as the government’s price-setting philosophy, costs (including rates of return sufficient to ensure future operations), or possible price discrimination. We are not putting these factors in any hierarchy, and we may rely on one or more of these factors in any particular case. In our experience, these types of analyses may be necessary for such goods or services as electricity, land leases, or water, and the circumstances of each case vary widely.”); see, e.g., Final Affirmative Countervailing Duty Determinations: Pure Magnesium and Alloy Magnesium from Canada, 57 FR 30946, 30954 (July 13, 1992); and Final Affirmative Countervailing Duty Determination: Venezuelan Wire Rod, 62 FR 55014, 55021-22 (October 22, 1997). See also Melamine from Trinidad and Tobago: Final Affirmative Countervailing Duty Determination, 80 FR 68849 (November 6, 2015), and accompanying IDM at 10. 102 See Russia Cold-Rolled Steel IDM at Comment 7. 103 Id. 104 Id. 105 Id. 106 Id. at 58 (emphasis added). 16 gas pricing approaches. Specifically, under a subsection entitled “PJSC Gazprom’s role in the Russian gas market development in 2019”107 Gazprom states:

 PJSC Gazprom submitted a memorandum to the Russian Government presenting its views on the procedure and timing of abandoning domestic market gas price regulation.  Proposals submitted to the Russian Federal Anti-Monopoly Service on improving the principles of setting gas distribution entity tariffs and distribution fees to address the existing imbalance and prepare to operate in a competitive market environment.  PJSC Gazprom provided active expert input to Resolution of the Government of the Russian Federation No. 1063 dated 17 August 2019 which authorised Gazprom to sell up to 25 bcm of gas through exchange-based trading channel and cancelled the requirement of parity between Gazprom and independent companies in exchange-based gas trading.

These statements provide evidence that during the POI Gazprom’s pricing was not set based on market principles and demonstrate that there were government resolutions during the period negating any attempts that had been made to create a segment of the market where pricing was set based on market principles. On the basis of the aforementioned record evidence, including the information contained within Gazprom’s annual reports, such as the citations from the 2019 annual report, above, and the fact that Gazprom’s prices are administratively set, we cannot conclude that the government natural gas prices are reflective of market principles during the POI. Because the government price is not set in accordance with market principles, we must look for an appropriate proxy to determine a market-based natural gas benchmark. This approach is consistent with Commerce’s practice.108

For consideration of a benchmark under tier three, we are not limited to identifying market prices that would be available to purchasers in Russia. Indeed, “{t}he regulations do not specify how {Commerce} is to conduct a market principles analysis.”109 Thus, consistent with our prior practice, it is possible to consider the world market prices on the record as potential benchmark prices in a tier three analysis.

Based on the record evidence, we find that the most appropriate proxy for a market-based natural gas benchmark to apply under tier three is a regional European OECD natural gas price. On the record are European OECD export prices sourced from the International Energy Agency (IEA), which the petitioner placed on the record.110 Where there is more than one commercially available market price to construct a benchmark price, it is Commerce’s practice to average the prices.111

107 See GOR Questionnaire Response at Exhibit III-47 “Gazprom 2019 Annual Report” at 61 (emphasis added). 108 See Certain Uncoated Paper from Indonesia: Final Affirmative Countervailing Duty Determination, 81 FR 3104 (January 20, 2016) (Uncoated Paper from Indonesia), and accompanying IDM at 15-16 (“Provision of Standing Timber for Less Than Adequate Remuneration”) (where Commerce found that the government price was not set in accordance with market principles, and thus sought a proxy to determine a market-based stumpage benchmark). 109 See Uncoated Paper from Indonesia IDM at 15. 110 See Petitioner Benchmark Submission. 111 See Rebar from Turkey IDM at “Provision of Natural Gas for LTAR.” 17 Because the dataset on the record contains a per-unit value in U.S. dollars, we derived average quarterly prices using the selected OECD European export market prices and then used an average quarterly exchange rate to convert the prices to rubles. Further, when measuring the adequacy of remuneration, Commerce will adjust the benchmark price to reflect the price that a firm actually paid or would pay if it imported the product, including delivery charges and import duties, i.e., a “delivered” price to the company’s facility. Therefore, in order to ensure that the quarterly benchmark prices reflect what the respondents would have paid if they had imported natural gas directly, the regulation stipulates that the average prices are to be adjusted by adding the delivery charges for the transmission and distribution of natural gas in Russia, any import duties and taxes, and surcharges. The GOR reported that imports of natural gas into Russia would be subject to a 20 percent VAT and five percent import duty.112 Therefore, to the monthly benchmark prices, we added VAT and the import duty.

Concerning delivery charges, the benchmark prices on the record are prices for natural gas calculated on a delivered basis.113 Therefore, we did not add any additional costs for transmission/distribution charges within the borders of the purchasing countries.

To calculate the program benefit, we compared the corresponding monthly benchmark unit prices to the unit prices that the respondents paid Gazprom, including delivery charges, surcharges, and taxes during the POI. In instances where the benchmark unit price was greater than the price paid to Gazprom, we multiplied the difference by the quantity of natural gas purchased from Gazprom to arrive at the benefit. We next summed the benefits for each respondent and divided that amount by the appropriate sales denominator for the POI, as described in the “Subsidies Valuation” section, above. On this basis, we preliminarily determine that the Phosphorite and JSC Apatit received countervailable subsidy rates of 68.89 percent and 19.35 percent ad valorem, respectively, under this program.114

2. Tax Incentives for Mining Operations – Income Tax Deduction for Exploration Expenses

Under Article 253 of the Tax Code of the Russian Federation (TCRF), expenses for the development of natural resources, such as exploration expenses, are considered to be expenses associated with production and sales, which are deductible from taxable income.115 Under Article 261 of the TCRF, taxpayers who have incurred expenses related to the development of natural resources, including outlays for geological studies of subsoil resources, prospecting for commercial minerals, and performance of work of a preparatory nature has the right to reduce the taxable part of the profit on such expenses.116 The GOR reported that there is no approval procedure for participating in this program; if companies meet the criteria established in the TCRF, then companies can automatically deduct the exploration costs on their tax returns, which can be subject to tax audits by the Federal Tax Service (FTS).117 JSC Apatit reported that it

112 See GOR Questionnaire Response at 54. 113 See Petitioner Benchmark Submission at Exhibit 15, page 312. 114 See EuroChem Preliminary Calculation Memo; see also PhosAgro Preliminary Calculation Memo. 115 See GOR Questionnaire Response at 85 and Exhibit IV-1. 116 Id. at 86. 117 Id. at 87 and 90. 18 deducted exploration expenses as defined in Article 261 in its 2018 income tax return, which was 118 filed with the tax authorities during the POI.

The GOR reported that the TCFR does not set eligibility requirements that a company must meet to claim an exploration expense deduction, i.e., there is no export contingency, domestic content requirement, sector-specific or geographical-specific requirement.119 We examined Article 261 and preliminarily determine that the tax deduction for exploration expenses is not de jure specific pursuant to section 771(5A)(D)(i) of the Act, as the law does not appear to limit access to an enterprise, industry, group of industries, or region. Further, the GOR reported that a taxpayer deducts exploration expenses automatically, provided there is evidence that such expenses are 120 economically justified and well documented in the taxpayer’s records.

Commerce’s initial questionnaire instructed the GOR to provide usage information for this tax deduction, e.g., the number of recipient companies and industries and the amount of annual assistance approved under the program.121 In its initial response, the GOR reported that the expenses for the development of natural resources are included by the taxpayer in the category “Other Expenses,” and as such, the FTS did not collect statistics on the companies incurring exploration expenses.122 In the first supplemental questionnaire, we again requested the GOR to submit usage data for the tax deduction for exploration expenses, to which they responded that the information was not reasonably available to the GOR.123 However, the GOR did state that during the POI, there were 10,471 active subsoil users in Russia, of which six companies had licenses to explore phosphate sites.124 In its initial questionnaire response, the GOR reported that there were 3,728,066 corporate income tax filers during the POI.125 As such, relying on the number of active subsoil users in Russia as a proxy for the usage of the tax deduction for exploration expenses, and consistent with our past practice with respect to this program, we preliminarily determine that the tax deduction for exploration expenses program is de facto specific under section 771(5A)(D)(iii)(I) of the Act because the recipients of the subsidy are limited in number.126

We further preliminarily determine that the tax deduction for exploration expenses provides a financial contribution under section 771(5)(D)(ii) of the Act in the form of forgone revenue that is otherwise due to the government. The benefit conferred is the difference between the amount of taxes the company paid and the amount of taxes that the company would have paid in the absence of this program, as described in 19 CFR 351.509(a), effectively, the amount of the tax deduction claimed. To calculate the subsidy rate, we divided the amount of the tax savings received by JSC Apatit by the appropriate sales denominator for the POI, as described in the

118 See PhosAgro Questionnaire Response at 41-42. 119 See GOR Questionnaire Response at 93-94. 120 Id. at 85-86. 121 See Initial Questionnaire at Section II Standard Questions Appendix at Section M Question 2. 122 See GOR Questionnaire Response at 96-97. 123 See GOR Supplemental Response at 19. 124 Id. at 4 and 6. 125 See GOR Questionnaire Response at 98. 126 See Russia Cold-Rolled Steel IDM at Comment 20. See also Certain Corrosion-Resistant Steel Products from the Republic of Korea: Final Results of the Countervailing Duty Administrative Review; 2017; 85 FR 15115 (March 17, 2020) and accompanying IDM at Comment 3. 19 “Subsidies Valuation” section, above. On this basis, we preliminarily determine that JSC Apatit received a countervailable subsidy rate of 0.02 percent ad valorem under this program.

3. Income Tax Deduction for Research and Development (R&D) Expenses

Under Article 262 of the TCRF, a taxpayer who has incurred R&D expenses classified as expenses associated with the creation or improvement of new or existing products, technologies, production methods or management may deduct these expenses from the taxable portion of their profit.127 Alternatively, under Article 262(7) of the TCRF, taxpayers may calculate the deduction by adding the amount of R&D expenses incurred during the tax reporting period to other expenses and multiplying the total by a coefficient of 1.5 (i.e., increasing total expenses by .5 percent.).128 The GOR reported that there is no approval procedure for participating in this program; if companies meet the criteria established in the TCRF, then companies can automatically take the deduction for R&D expenses on their tax returns, which can be subject to tax audits by the FTS.129 A taxpayer using the 1.5 coefficient method to calculate the deduction must additionally submit to the FTS a report on the R&D work performed and the associated costs.130 JSC Apatit reported deducting R&D expenses under Article 262 in its 2018 income tax return, which was filed with the tax authorities during the POI.131 Phosphorite reported that its cross-owned affiliates, KGOK and NAK Azot, deducted the R&D expenses using the 1.5 coefficient as defined in Article 262(7) in their 2018 income tax return, which was filed with the tax authorities during the POI.132

The GOR reported that Chapter 25 and Article 262 of the TCFR set out the eligibility requirements and types of R&D expenses for which a company can claim the R&D expenses deduction.133 During the POI, there were 3,728,066 corporate income tax filers in Russia, of which only 765 companies used the R&D expenses deduction and only 47 companies applied the 1.5 coefficient to calculate the deduction under this program.134 Accordingly, we preliminarily determine that this program is de facto specific within the meaning of section 771(5A)(D)(iii)(I) of the Act because the actual number of recipients of the subsidy is limited. This program results in a financial contribution from the GOR to recipients in the form of revenue forgone, as described in section 771(5)(D)(ii) of the Act. The benefit conferred on the recipient is the difference between the amount of taxes it paid and the amount of taxes that it would have paid in the absence of this program, as described in 19 CFR 351.509(a), effectively, the amount of the tax credit claimed.

To calculate the subsidy rate, we divided the amount of the tax savings received by JSC Apatit, KGOK and NAK Azot by the appropriate sales denominator for the POI, as described in the “Subsidies Valuation” section, above. On this basis, we preliminarily determine that the benefit

127 See GOR Questionnaire Response at 105 and Exhibit IV-1. 128 Id. 129 Id. at 110-111. 130 Id. 131 See PhosAgro Questionnaire Response at 41-42. 132 See EuroChem Questionnaire Response at Exhibits PQ-B1 and PQ-B2; see also EuroChem Supplemental Response at Exhibit SQ-19. 133 See GOR Questionnaire Response at 114. 134 Id. at 116 and 118. 20 JSC Apatit resulted in a subsidy rate that is less than 0.005 percent.135 For KGOK and NAK Azot, we preliminarily determine a countervailable subsidy rate of 0.01 percent ad valorem under this program.136

4. Murmansk Region’s Support of Industrial Development

The Murmansk region implemented the law “On State Support for Investment Activities in the Murmansk Region” of January 11, 2011 No. 1315-01-3MO to promote a favorable investment environment in the region.137 The program provides multiple measures for companies implementing new investment and fixed assets renewal projects in the region, such as corporate income and corporate property tax rate reductions; corporate property tax deferral; corporate property tax credit; regional state guarantees; consulting, informational and organizational support; and other forms of support that do not contradict federal and regional legislation.138 The support for tax reductions was introduced by the law “On amendments to certain legislative acts of the Murmansk region in terms of state support for investment activities on the territory of the Murmansk region (as amended on November 28, 2013)” of June 28, 2013 No. 1650-01-3MO.139 The Kirovsk branch of JSC Apatit reported receiving corporate income and property tax reductions under this program.140 Phosphorite reported that its cross-owned input supplier, KGOK, received corporate income and property tax reductions, as well as property tax exemptions, under this program.141

The Ministry of the Economic Development of the Murmansk Region (MEDMR) is the agency that administers this program.142 In order to obtain the corporate income and property tax reductions and exemptions, an investor must submit an investment project along with supporting documents to the regional government.143 Once the application is submitted, the MEDMR reviews it within seven days for completeness and forwards it to three bodies, the executive authorities of the Murmansk region, the members of the Interdepartmental Commission for the Consideration of Investment Projects (ICCIP) of the Murmansk Region, and the municipal authorities, which have 20 business days to consider the investment project.144 If any of these bodies submit comments or proposals, the MEDMR will ask the investor to submit the requested documentation.145 Then, the MEDMR prepares a summary table of proposals with the investor’s comments and makes conclusions on the compliance of the investment project with the strategy of social and economic development of the Murmansk region, and on the compliance of the investment project with the criteria of economic, budgetary, and social efficiency.146 The ICCIP then discusses the project and makes a decision, which is subsequently approved the Murmansk

135 See PhosAgro Preliminary Calculation Memo. 136 See EuroChem Preliminary Calculation Memo. 137 See GOR Questionnaire Response at 125-126. 138 Id. 139 Id. 140 See PhosAgro Questionnaire Response at 54-56; see also PhosAgro Supplemental Response at 28. 141 See EuroChem Questionnaire Response at Exhibit PQ-D1. 142 See GOR Questionnaire Response at 126. 143 Id. at 131. 144 Id. at 132. 145 Id. 146 Id. at 133. 21 regional government.147 The regional authorities sign an investment agreement with the investor and collect quarterly reports on the state of investment activities.148 Subsequently, the taxpayer claims the right to apply the tax incentives by submitting their tax declarations to the FTS.149 The GOR also stated that companies can sign multiple investment agreements for different projects, with the application of tax reductions and exemptions to be applied for the number of tax periods in the agreement without cumulative benefits from the number of agreements.150 If a respondent fails to comply with one agreement, the validity and continuation of tax preferences with respect to other agreements are not affected.151

According to the GOR, only companies making capital investments in the Murmansk region are eligible for this program.152 During the POI, there were 14,767 companies in the Murmansk region, of which twelve companies were approved for assistance and ten companies received benefits under this program.153 Accordingly, we preliminarily determine that this program is de facto specific within the meaning of section 771(5A)(D)(iii)(I) of the Act because the actual number of recipients of the subsidy is limited. This program results in a financial contribution from the Murmansk regional government to recipients in the form of revenue forgone, as described in section 771(5)(D)(ii) of the Act. The benefit conferred on the recipient is the difference between the amount of taxes it paid and the amount of taxes that it would have paid in the absence of this program, as described in 19 CFR 351.509(a), effectively, the amount of the tax credit claimed.

To calculate the benefit, we divided the amount of the corporate income and property tax savings received by JSC Apatit by the appropriate sales denominator for the POI, as described in the “Subsidies Valuation” section, above. On this basis, we preliminarily determine that JSC Apatit received a countervailable subsidy rate of 0.21 percent ad valorem under this program.154 For Phosphorite, we divided KGOK’s calculated benefit by the appropriate sales denominator for the POI, as described in the “Subsidies Valuation” section, above. On this basis, we preliminarily determine that Phosphorite received a countervailable subsidy rate of 0.38 percent ad valorem under this program.155

147 Id. at 133 and 136. 148 Id. at 128. 149 Id. at 134. 150 See GOR Supplemental Response at 21. 151 Id. at 22. 152 See GOR Questionnaire Response at 135. 153 Id. at 141. 154 See PhosAgro Preliminary Calculation Memo. 155 See EuroChem Preliminary Calculation Memo. 22 5. Saratov Region’s Support of Industrial Development

The Saratov region implemented the law “On the Most Favored Treatment Regime for Investors in the Saratov Region” of June 28, 2007 No. 116-3CO to promote a favorable investment environment in the region.156 The program provides multiple measures for investors implementing a project to modernize existing production in the region, such as the provision of tax incentives; investment tax credit for corporate income tax (in terms of the amount of such tax to be credited to the regional budget) and for regional taxes, as well as deferral or installment plans for the payment of regional taxes; consulting, informational and organizational support; regional state guarantees; objectives of the pledged fund for the region in order to ensure obligations when attracting investment resources for the implementation of investment projects in the region; assistance to investors; and other forms of support that do not contradict federal and regional legislation.157 The support for corporate income and property tax incentives was introduced by the laws “On the introduction of a tax on the property of organizations in the Saratov region” of November 24, 2003 No. 73-3CO and “On corporate income tax rates in relation to investors carrying out investment activities in the Saratov Region” of August 1, 2007 No. 131-3CO.158 The Balakovo branch of JSC Apatit reported receiving corporate income and property tax reductions under this program.159

The Ministry of the Economic Development of the Saratov Region is the agency that administers this program.160 In order to obtain the corporate income tax reductions, an investor must make capital investments in fixed assets located in the region of at least 900 million rubles, carry out certain outlined economic activities, such as the production of fertilizers and nitrogen compounds, and have an average of at least 1,000 employees from the previous calendar year.161 In order to obtain property tax reductions, organizations must acquire property that was not previously taxable by making capital investments in fixed assets in the amount of at least 50 million rubles.162 Investors must submit an application with the description of the investment project along with supporting documents, such as a business plan, to the regional government. The regional executive authority will approve the draft investment agreement outlining the investment project and sign the agreement with the investor.163 Subsequently, the taxpayer claims the right to apply the tax incentives by submitting their tax declarations to the FTS.164

According to the GOR, only companies listed as priority areas of economic development, such as the production of fertilizers, are eligible for this program.165 During the POI, there were 41,613 companies in the Saratov region, of which 23 companies were approved for assistance under this program.166 Accordingly, we preliminarily determine that this program is de facto specific

156 See GOR Questionnaire Response at 148. 157 Id. at 149. 158 Id. at 150. 159 See PhosAgro Questionnaire Response at 59. 160 See GOR Questionnaire Response at 150. 161 Id. at 157. 162 Id. 163 Id. at 155. 164 Id. at 156. 165 Id. at 157. 166 Id. at 167. 23 within the meaning of section 771(5A)(D)(iii)(I) of the Act because the actual number of recipients of the subsidy is limited. This program results in a financial contribution from the Saratov regional government to recipients in the form of revenue forgone, as described in section 771(5)(D)(ii) of the Act. The benefit conferred on the recipient is the difference between the amount of taxes it paid and the amount of taxes that it would have paid in the absence of this program, as described in 19 CFR 351.509(a), effectively, the amount of the tax credit claimed.

To calculate the benefit, we divided the amount of the corporate income and property tax savings received by JSC Apatit by the appropriate sales denominator for the POI, as described in the “Subsidies Valuation” section, above. On this basis, we preliminarily determine that JSC Apatit received a countervailable subsidy rate of 0.15 percent ad valorem under this program.167

6. Vologda Region’s Support of Industrial Development

The Vologda region implemented the law “On state regulation of investment activities carried out in capital investments in the territory of the Vologda Region and on amendments to certain acts” of May 8, 2013 No. 3046-OZ to promote investment and innovation in the region.168 The program provides corporate income and property tax incentives for companies implementing priority investment projects aimed at construction, creation of new production capacity, and modernization of existing production capacity.169 The support for corporate income and property tax incentives was introduced by the laws “On the tax on property of organizations” of November 21, 2003 No. 968-OZ and “On the reduction of the corporate profit tax rate for certain categories of taxpayers” of April 30, 2002 No. 781-OZ.170 JSC Apatit reported receiving corporate income and property tax reductions under this program.171

The Department of Economic Development of the Vologda Region (DEDVR) is the agency that administers this program.172 In order to obtain the tax reductions, a company must be engaged in certain outlined economic activities, such as chemical production, which, for example, must make capital investments of seven billion rubles to obtain corporate property tax benefits and 30 billion rubles to obtain corporate income tax benefits.173 Investors must submit a written application for the consideration of an investment project indicating the specific forms of state support for which it claims and a set of supporting documentation.174 Within five days of submission, the DEDVR will review the application and conduct an assessment of the economic efficiency of the project, and send the application to Department of Finance of the Vologda Region to assess the budget efficiency of the project.175 The DEDVR will send the conclusions of both studies to the Investment Council, which will decide on the priority of the project, which is subsequently approved by the Vologda regional government.176 Once approved, the Vologda

167 See PhosAgro Preliminary Calculation Memo. 168 See GOR Questionnaire Response at Exhibit OTHER-2. 169 Id. 170 Id. 171 See PhosAgro Supplemental Response at 31-32. 172 See GOR Questionnaire Response at Exhibit OTHER-2. 173 Id. 174 Id. 175 Id. 176 Id. 24 regional government will sign the investment agreement with the investor and collect quarterly reports on the state of investment activities.177 Subsequently, the taxpayer claims the right to apply the tax incentives by submitting their tax declarations to the FTS.178 The GOR also stated that companies can sign multiple investment agreements for different projects, with the application of tax reductions and exemptions to be applied for the number of tax periods in the agreement without cumulative benefits from the number of agreements.179 If a respondent fails to comply with one agreement, the validity and continuation of tax preferences with respect to other agreements are not affected.180

According to the GOR, only companies making capital investments in the Vologda region are eligible for this program.181 During the POI, there were 34,628 companies in the Vologda region, of which seven companies were approved for assistance under this program.182 Accordingly, we preliminarily determine that this program is de facto specific within the meaning of section 771(5A)(D)(iii)(I) of the Act because the actual number of recipients of the subsidy is limited. This program results in a financial contribution from the Vologda regional government to recipients in the form of revenue forgone, as described in section 771(5)(D)(ii) of the Act. The benefit conferred on the recipient is the difference between the amount of taxes it paid and the amount of taxes that it would have paid in the absence of this program, as described in 19 CFR 351.509(a), effectively, the amount of the tax credit claimed.

To calculate the benefit, we divided the amount of the corporate income and property tax savings received by JSC Apatit by the appropriate sales denominator for the POI, as described in the “Subsidies Valuation” section, above. On this basis, we preliminarily determine that JSC Apatit received a countervailable subsidy rate of 1.21 percent ad valorem under this program.183

7. Leningrad Region’s Support of Industrial Development

The Leningrad region implemented the law “On the regime of state support for organizations carrying out investment activities in the Leningrad Region, and amending certain legislative acts of the Leningrad Region” of December 29, 2012 No. 113-O3 to promote investment activities in the region.184 The program provides a reduced corporate income tax rate of 13.5 percent, with respect to the tax amount credited to the regional budget of the Leningrad region, and an exemption from corporate property tax as support for investment activities in the region.185 The support for the corporate property tax incentives was introduced by the law “On tax on property of organizations” of November 25, 2003 No. 98-O3.186 JSC Apatit and Phosphorite reported receiving corporate income and property tax reductions under this program.187

177 Id.; see also GOR Supplemental Response at 24. 178 See GOR Questionnaire Response at Exhibit OTHER-2. 179 See GOR Supplemental Response at 26. 180 Id. 181 See GOR Questionnaire Response at Exhibit OTHER-2. 182 Id. 183 See PhosAgro Preliminary Calculation Memo. 184 See GOR Questionnaire Response at Exhibit OTHER-1. 185 Id. 186 Id. 187 See PhosAgro Supplemental Response at 37-38; see also EuroChem Questionnaire Response at Exhibit PQ-E1. 25

The Committee for Economic Development and Investment Activity of the Leningrad Region (CEDIALR) is the agency that administers this program.188 In order to obtain the corporate income and property tax reductions, a company must be engaged in certain outlined economic activities, such as chemical production.189 The investor must submit a written application and a set of supporting documentation, including a business plan of an investment project containing information on key production, economic, social, and financial factors, as well as a calculation of the total volume of investments.190 The CEDIALR will review the application to ensure compliance with the economic criteria and prepare an opinion on the applicant’s compliance with the conditions and investments criteria, and the possibility of concluding an agreement, calculating the income to be forgone by the budget of the Leningrad region for the corresponding financial year.191 The Governor of the Leningrad Region signs the investment agreement with the approved investor and collects quarterly reports on the state of investment activities.192 Subsequently, the taxpayer claims the right to apply the tax incentives by submitting their tax declarations to the FTS.193 The GOR also stated that companies can sign multiple investment agreements for different projects, with the application of tax reductions and exemptions to be applied for the number of tax periods in the agreement without cumulative benefits from the number of agreements.194 If a respondent fails to comply with one agreement, the validity and continuation of tax preferences with respect to other agreements are not affected.195

According to the GOR, only companies making capital investments in the Leningrad region are eligible for this program.196 During the POI, there were 32,801 companies in the Leningrad region, of which three companies were approved for assistance under this program.197 Accordingly, we preliminarily determine that this program is de facto specific within the meaning of section 771(5A)(D)(iii)(I) of the Act because the actual number of recipients of the subsidy is limited. This program results in a financial contribution from the Leningrad regional government to recipients in the form of revenue forgone, as described in section 771(5)(D)(ii) of the Act. The benefit conferred on the recipient is the difference between the amount of taxes it paid and the amount of taxes that it would have paid in the absence of this program, as described in 19 CFR 351.509(a), effectively, the amount of the tax credit claimed.

To calculate JSC Apatit’s benefit, we divided the amount of the corporate income and property tax savings received by JSC Apatit by the appropriate sales denominator for the POI, as described in the “Subsidies Valuation” section, above. The calculation of the benefit resulted in a subsidy rate that is less than 0.005 percent.198 To calculate Phosphorite’s benefit, we divided the amount of the corporate income and property tax savings received by Phosphorite by the

188 See GOR Questionnaire Response at Exhibit OTHER-1. 189 Id. 190 Id. 191 Id. 192 Id.; see also GOR Supplemental Response at 24. 193 See GOR Questionnaire Response at Exhibit OTHER-1. 194 See GOR Supplemental Response at 25. 195 Id. 196 See GOR Questionnaire Response at Exhibit OTHER-1. 197 Id. 198 See PhosAgro Preliminary Calculation Memo. 26 appropriate sales denominator for the POI, as described in the “Subsidies Valuation” section, above. On this basis, we preliminarily determine that Phosphorite received a countervailable subsidy rate of 0.87 percent ad valorem under this program.199

8. Tula Region’s Support of Industrial Development

The Tula region implemented the law “On preferential taxation in the implementation of investment activities in the form of capital investments in the Tula Region” of February 6, 2010 No. 1390-3TO to increase investment activity in the region.200 The program provides corporate income and property tax incentives aimed at the promotion of investments through the support of entrepreneurs planning to implement large investment projects in the Tula region.201 Phosphorite reported that its cross-owned affiliate, NAK-Azot, received corporate income and property tax reductions under this program.202

The Ministry of Economic Development of the Tula Region is the agency that administers this program.203 During 2019, companies were required to invest at least 100 million rubles in the Tula region.204 The Tula region does not require companies to sign an investment agreement to obtain the benefits.205 The taxpayer simply claims the right to apply the tax incentives by submitting their tax declarations to the FTS.206 The Tula regional government will carry out annual monitoring of the volume of investments made by the company in the framework of an investment project, and will rescind the benefits in case of a company’s failure to implement the project in the region.207

According to the GOR, only companies making capital investments in the Tula region are eligible for this program.208 During the POI, there were 31,458 companies in the Tula region, of which 22 companies received assistance for corporate income tax reductions and 10 received assistance for corporate property tax reductions under this program.209 Accordingly, we preliminarily determine that this program is de facto specific within the meaning of section 771(5A)(D)(iii)(I) of the Act because the actual number of recipients of the subsidy is limited. This program results in a financial contribution from the Tula regional government to recipients in the form of revenue forgone, as described in section 771(5)(D)(ii) of the Act. The benefit conferred on the recipient is the difference between the amount of taxes it paid and the amount of taxes that it would have paid in the absence of this program, as described in 19 CFR 351.509(a), effectively, the amount of the tax credit claimed.

199 See EuroChem Preliminary Calculation Memo. 200 See GOR Questionnaire Response at Exhibit OTHER-3. 201 Id. 202 See EuroChem Questionnaire Response at Exhibit PQ-E1. 203 See GOR Questionnaire Response at Exhibit OTHER-3. 204 Id. 205 See GOR Supplemental Response at 24. 206 See GOR Questionnaire Response at Exhibit OTHER-3. 207 Id. 208 Id. 209 Id. 27 To calculate the benefit, we divided the amount of the corporate income and property tax savings received by NAK Azot by the appropriate sales denominator for the POI, as described in the “Subsidies Valuation” section, above. On this basis, we preliminarily determine that Phosphorite received a countervailable subsidy rate of 0.24 percent ad valorem under this program.210

9. Stavropol Krai’s Support of Industrial Development

The Stavropol Krai territory implemented the law “On investment activities in the Stavropol Krai” of October 1, 2007 No. 55-K3 to develop investment activities in the territory.211 The program provides a reduced corporate income tax rate and an exemption on property tax rates.212 The support for corporate income and property tax incentives was introduced by the laws “On approval of the Procedure for concluding, monitoring the implementation and termination of investment agreement” of November 28, 2013 No. 434-II and “On tax on property of organizations” of November 26, 2003 No. 44-K3.213 Phosphorite reported that its cross-owned affiliate, Nevinka, received corporate income and property tax reductions under this program.214

The Government of the Stavropol Territory is the authority that administers this program.215 In order to obtain the corporate income and property tax reductions, a company must be engaged in certain outlined economic activities, such as chemical production, demonstrate economic efficiency in investments of more than 300 million rubles, and the investment must have social and budgetary efficiency with regard to job creation, salaries, and taxes paid.216 Investors must submit a cover letter and a set of supporting documentation, including a business plan of an investment project with the calculation of budgetary efficiency, as well as proof of funds to implement the project.217 The Ministry of Economic Development of the Stavropol Territory (MEDST) will review the application to ensure compliance with the economic criteria and prepare an opinion on the possibility of concluding an investment agreement indicating the forms of state support, while the financial body calculates the budgetary efficiency of the project.218 The MEDST will then send the conclusions of both studies to the Coordination Council, which will decide on the priority of the project, which is subsequently approved by the Stavropol territorial government.219 Once approved, the MEDST will prepare a draft investment agreement that the Stavropol territorial government will sign with the investor.220 Subsequently, the taxpayer claims the right to apply the tax incentives by submitting their tax declarations to the FTS.221 The investor must provide quarterly reports on the amount of invested funds, the number of jobs provided, the amount of taxes paid, and the tax benefits received.222 The GOR also stated that companies can sign multiple investment agreements for different projects, with

210 See EuroChem Preliminary Calculation Memo. 211 See GOR Questionnaire Response at Exhibit OTHER-4. 212 Id. 213 Id. 214 See EuroChem Questionnaire Response at Exhibit PQ-E1. 215 See GOR Questionnaire Response at Exhibit OTHER-4. 216 Id. 217 Id. 218 Id. 219 Id. 220 Id. 221 Id. 222 Id. 28 the application of tax reductions and exemptions to be applied for the number of tax periods in the agreement without cumulative benefits from the number of agreements.223 If a respondent fails to comply with one agreement, the validity and continuation of tax preferences with respect to other agreements are not affected.224

According to the GOR, only companies making capital investments in the Stavropol territory are eligible for this program.225 During the POI, there were 36,062 companies in the Stavropol territory, of which 33 companies received assistance under this program.226 Accordingly, we preliminarily determine that this program is de facto specific within the meaning of section 771(5A)(D)(iii)(I) of the Act because the actual number of recipients of the subsidy is limited. This program results in a financial contribution from the Stavropol territorial government to recipients in the form of revenue forgone, as described in section 771(5)(D)(ii) of the Act. The benefit conferred on the recipient is the difference between the amount of taxes it paid and the amount of taxes that it would have paid in the absence of this program, as described in 19 CFR 351.509(a), effectively, the amount of the tax credit claimed.

To calculate the benefit, we divided the amount of the corporate income and property tax savings received by Nevinka by the appropriate sales denominator for the POI, as described in the “Subsidies Valuation” section, above. On this basis, we preliminarily determine that Phosphorite received a countervailable subsidy rate of 0.56 percent ad valorem under this program.227

10. Krasnodar Krai’s Support of Industrial Development

The Krasnodar Krai territory implemented the law “On stimulating investment activity in the Krasnodar Krai” of July 2, 2004 No. 731-KZ to stimulate investment activities in the territory.228 The program provides a corporate property tax rate reduction, which is performed via investment agreements concluded between an investor and the corresponding local authorities.229 The support for corporate property tax incentives was introduced by the laws “On tax on property of organizations” of November 26, 2003 No. 620-KZ and “On measures to implement certain forms of state support for investors in the territory of the Krasnodar Krai and the invalidation of certain resolutions Head of Administration (Governor) of Krasnodar Krai” of June 6, 2017 No. 417.230 Phosphorite reported that its cross-owned affiliate, BMU, received corporate property tax reductions under this program.231

The Department of Investments and Development of Small and Medium-Sized Businesses of the Krasnodar Krai (DIDSMBKK) is the authority that administers this program.232 In order to obtain the corporate property tax reductions, the investment project must be valued at 500

223 See GOR Supplemental Response at 27. 224 Id. 225 See GOR Questionnaire Response at Exhibit OTHER-4. 226 Id. 227 See EuroChem Preliminary Calculation Memo. 228 See GOR Questionnaire Response at Exhibit OTHER-5. 229 Id. 230 Id. 231 See EuroChem Questionnaire Response at Exhibit PQ-E1. 232 See GOR Questionnaire Response at Exhibit OTHER-5. 29 million rubles, have financial feasibility, and achieve cost-effectiveness, as well as social, budgetary, and industry efficiency.233 Investors must submit an application and a set of supporting documentation, including a business plan of an investment project.234 The DIDSMBKK will review the application to ensure compliance with the necessary documentation and prepare a conclusion on the project feasibility.235 The DIDSMBKK will then send the conclusion the Interdepartmental Investment Commission, which will approve the project and conclude the investment agreement with the investor.236 Subsequently, the taxpayer claims the right to apply the tax incentives by submitting their tax declarations to the FTS.237 The investor must provide annual and semi-annual reports on the amount of invested funds, the number of jobs provided, the amount of taxes paid, and the tax benefits received.238

According to the GOR, any company that implements an investment project in the Krasnodar territory is eligible for this program.239 During the POI, there were 116,203 companies in the Krasnodar territory, of which 30 companies received assistance under this program.240 Accordingly, we preliminarily determine that this program is de facto specific within the meaning of section 771(5A)(D)(iii)(I) of the Act because the actual number of recipients of the subsidy is limited. This program results in a financial contribution from the Krasnodar territorial government to recipients in the form of revenue forgone, as described in section 771(5)(D)(ii) of the Act. The benefit conferred on the recipient is the difference between the amount of taxes it paid and the amount of taxes that it would have paid in the absence of this program, as described in 19 CFR 351.509(a), effectively, the amount of the tax credit claimed.

To calculate the benefit, we divided the amount of the corporate income and property tax savings received by BMU by the appropriate sales denominator for the POI, as described in the “Subsidies Valuation” section, above. On this basis, we preliminarily determine that Phosphorite received a countervailable subsidy rate of 0.06 percent ad valorem under this program.241

11. Special Investment Contract (SPIC) with Perm Krai

A SPIC is an agreement between the federal or regional government and an investor aimed at stimulating investment activity, including establishment or modernization of industrial production, introducing the best available technologies, increasing environmental efficiency, and protecting the environment.242 The federal law “On Industrial Policy in the Russian Federation” as amended on June 27, 2018 No. 488-FZ, and the decree “On special investment contracts for certain industries” of July 26, 2015 No. 708, are relevant to the conclusion of a SPIC.243 Phosphorite reported that its cross-owned affiliate, UKK, received a property tax exemption

233 Id. 234 Id. 235 Id. 236 Id. 237 Id. 238 Id. 239 Id. 240 Id. 241 See EuroChem Preliminary Calculation Memo. 242 See GOR Supplemental Response at Exhibit FS-14. 243 Id. 30 during the POI under a SPIC signed with the Perm region.244 The GOR reported that the Perm territory implemented the law “On the regulation of the legislation of the Perm Krai on taxes and fees in relation to taxpayers with whom a special investment contract has been concluded, on the establishment of tax rates for property tax of organizations and for tax on profit of organizations for the specified category of taxpayers and on amendments to the Law of the Perm Krai “On Taxation in the Perm Krai.” of October 8, 2015 No. 549-PC.245

The Ministry of Industry and Trade of the Russian Federation (MIT) is the federal authority that administers this program along with the Government of Perm Krai.246 In order to conclude a SPIC, an applicant must implement an investment project of at least 750 million rubles in the corresponding region or territory.247 Investors must submit an application and a set of supporting documentation, including a business plan and financial model of the investment project, a schedule of project implementation and investment spending by year, and a list of measures to stimulate industrial activity.248 The MIT will review the application and supporting documents to ensure compliance with the requirements and send the package to the Interdepartmental Commission on SPIC, who will decide whether to approve the SPIC on the terms proposed by the investor.249

During the POI, the GOR concluded SPICs with a limited number of companies.250 Accordingly, we preliminarily determine that this program is de facto specific within the meaning of section 771(5A)(D)(iii)(I) of the Act because the actual number of recipients of the subsidy is limited. This program results in a financial contribution from the Perm Krai territorial government to recipients in the form of revenue forgone, as described in section 771(5)(D)(ii) of the Act. The benefit conferred on the recipient is the difference between the amount of taxes it paid and the amount of taxes that it would have paid in the absence of this program, as described in 19 CFR 351.509(a), effectively, the amount of the tax credit claimed.

To calculate the benefit, we divided the amount of the corporate property tax savings received by the appropriate sales denominator for the POI, as described in the “Subsidies Valuation” section, above. On this basis, we preliminarily determine that Phosphorite received a countervailable subsidy rate of 1.35 percent ad valorem under this program.251

12. Preferential Debt Financing of Projects Aimed at Introducing the Best Available Technologies

The GOR reported that since December 17, 2004, it has introduced a program to stimulate activities in the industrial sector by providing debt financing for projects implemented in priority

244 See EuroChem Supplemental Response at Exhibit SQ-26.1. 245 See GOR Supplemental Response at Exhibit FS-14. 246 Id. 247 Id. 248 Id. 249 Id. 250 The actual number of SPICs concluded by the GOR during the POI is proprietary in nature. See GOR Supplemental Response at Exhibit FS-14. 251 See EuroChem Preliminary Calculation Memo. 31 areas of Russian industry.252 The program was established in accordance with the resolution “On approval of the Rules for the provision of subsidies from the federal budget to the Federal State Autonomous Institution “Russian Foundation for Technological Development” in order to stimulate activities in the field of industry” of December 17, 2004 No. 1388.253 The RFTD provided fixed long-term loans at a rate of five percent per annum, which is determined by the Supervisory Board of the RFTD.254 Phosphorite reported that it, along with its cross-owned affiliates, NAK Azot and Nevinka, each received a loan from the RFTD.255

In order to obtain a loan from the RFTD, an application is submitted in electronic format, attaching documents such as proposals for securing loan repayment.256 The RFTD examines the project for compliance with the requirements of production, technological, scientific, technical, financial, economic, and legal expertise. The Expert Council, which consists of non- governmental specialists in the field of scientific, technical, production, technological, and investment activities, examines and evaluates the projects and decides whether to grant financial support.257 The requested amount of support is determined by the company independently when submitting its application, but the amount must be between 50 and 500 million rubles, which must not account for more than 50 percent of the investment project budget.258

According to the law founding the RFTD, subsidies are provided from the federal budget to stimulate activities in the field of industry, implement the best available technologies, and/or to pursue import substitution.259 In addition, the law states that the RFTD, in agreement with the MIT and the Ministry of Economic Development, determines the conditions for financial support of projects, such as the procedures for selecting applications for financial assistance.260 The Supervisory Board of the RFTD includes the Deputy Ministers of Finance and Industry and Trade.261 The GOR also stated that the founder and owner of the property of the RFTD is the Russian Federation and that full powers are exercised by the MIT.262 As such, we preliminarily determine that the RFTD is an “authority” under section 771(5)(B) of the Act. Therefore, this program results in a financial contribution in the form of a direct transfer of funds through loans under section 771(5)(D)(i) of the Act. Accordingly, we preliminary determine that the program results in a financial contribution, which confers a benefit under section 771(5)(E)(ii) of the Act and 19 CFR 351.505 in the amount of the difference between the amount of interest Phosphorite, NAK Azot, and Nevinka paid on the RFTD loans and the amount they would have paid on a comparable commercial loan. We preliminarily determine that this program is de facto specific within the meaning of section 771(5A)(D)(iii)(I) of the Act because the number of loans provided during 2017, the year that Phosphorite, NAK Azot, and Nevinka obtained their long-

252 See GOR Questionnaire Response at Exhibit XVI. 253 Id. 254 Id. at Exhibit OTHER-6. 255 See EuroChem Questionnaire Response at Exhibit PQ-E4. 256 See GOR Questionnaire Response at Exhibit XVI. 257 Id. 258 Id. 259 Id. at Exhibit XVI-1. 260 Id. 261 Id. at Exhibit XVI-2. 262 Id. at Exhibit XVI. 32 term loans, was limited.263 Accordingly, we preliminarily determine that this program is de facto specific within the meaning of section 771(5A)(D)(iii)(I) of the Act because the actual number of recipients of the subsidy is limited.

To calculate a benefit under this program, we compared the amount of interest Phosphorite, NAK Azot, and Nevinka paid on these loans during the POI to the amount they would have paid under the benchmark interest rate prescribed above. We then divided Phosphorite and Nevinka’s calculated benefit by the appropriate sales denominator for the POI, as described in the “Subsidies Valuation” section, above. Similarly, we divided NAK Azot’s calculated benefits by the appropriate sales denominator for the POI, as described in the “Subsidies Valuation” section, above. Finally, we summed the rates of the three companies together to preliminarily calculate a subsidy rate of 0.14 percent ad valorem for Phosphorite.264

B. Programs Preliminarily Determined Not to Have Conferred a Measurable Benefit or Not to Have Conferred a Benefit During the POI

We have preliminarily determined that the following programs did not confer a measurable benefit, or did not confer a benefit, during the POI. Therefore, we do not reach a preliminary determination as to whether there is financial contribution or specificity for these programs.

1. Reimbursement of Part of the Costs Associated with the Acquisition of Freight Railway Rolling Stock

Phosphorite’s cross-owned affiliates NAK Azot and Nevinka reported receiving benefits under this program during the AUL.265 To calculate the benefit under this program for these companies, we first applied the “0.5 percent expense test” as described in the “Allocation Period” section above. Grant amounts that did not exceed the 0.5 percent threshold were expensed fully in the year of receipt. In calculating a benefit for these grants to NAK Azot and Nevinka, we preliminarily determine that these grants do not meet the 0.5 percent threshold for allocation over the AUL period, pursuant to 19 CFR 351.524(b)(2). Therefore, we preliminarily determine that these grants received by NAK Azot and Nevinka offered no allocable benefit during the POI.266 Further, the companies reported receiving no benefits for this program during the POI.

2. Partial Compensation of Professional Training Expenses

Phosphorite’s cross-owned affiliate Nevinka reported that it received benefits under this worker subsidy program during the POI.267 To calculate the benefit, we divided the amount of assistance received by the combined total sales of Nevinka, BMU, and Phosphorite, less

263 The actual number of loans provided by the RFTD during 2017 is proprietary in nature. See GOR Questionnaire Response at Exhibit XVI. 264 See EuroChem Preliminary Calculation Memo. 265 See EuroChem Questionnaire Response at 44. 266 See EuroChem Preliminary Calculation Memo. 267 See EuroChem Questionnaire Response at 45. 33 intercompany sales, for the POI. The calculation of the benefit resulted in a preliminary subsidy rate that is less than 0.005 percent.268

C. Programs Preliminarily Determined to Be Not Used

We preliminarily determine that respondents did not apply for or receive countervailable benefits during the POI under the following programs:

1. Tax Incentives for Mining Operations – Reduction in Extraction Tax 2. State Specialized Russian Export-Import Bank Financing

3. Provision of Phosphate Mining Rights for LTAR

JSC Apatit reported that it obtained two mining licenses from the GOR after April 1, 2002, which is the date Commerce recognized that Russia made the transition to a market economy for purposes of the AD and CVD laws.269 Consistent with our treatment of this program in the Russia Cold-Rolled Steel investigation, we only consider licenses acquired after the “cut-off” date of April 1, 2002, to be countervailable because the financial contribution, i.e., the issuance of the mining licenses, occurred after the “cut-off” date.270 In addition, as in Russia Cold-Rolled Steel, we consider the calculation of a benefit under this program to be not on the value of the mining rights per se, but on the value of the underlying good conveyed via the mining rights.271 However, JSC Apatit reported that it did not extract phosphate rock from the two deposits, the licenses for which were acquired after 2002, during the POI.272 Therefore, because JSC Apatit did not extract phosphate rock during the POI from these two deposits, we preliminarily determine that JSC Apatit did not use the program during the POI.

D. Programs for Which More Information is Required

1. Provision of Phosphate Mining Rights for LTAR

Phosphorite’s cross-owned input supplier KGOK reported that it had obtained four mining licenses from the GOR, two of which were obtained after the “cut-off” date.273 However, we do not have enough information to calculate a benefit for the two licenses at issue. As such, we intend to issue a supplemental questionnaire to Phosphorite and we will issue a post-preliminary analysis on this program. As Phosphorite demonstrated that none of the terms of the licenses issued prior to the “cut-off” date were substantially changed since their initial issuance,274 we intend to focus our post-preliminary analysis on the countervailability of the two mining licenses issued to KGOK after the “cut-off” date to the extent KGOK extracted phosphate rock under these licenses during the POI.

268 See EuroChem Preliminary Calculation Memo. 269 See PhosAgro Questionnaire Response at 9; see also Russia Cold-Rolled Steel IDM at 8. 270 Id. at 24. 271 Id. at 30. 272 See PhosAgro Supplemental Response at 15. 273 See EuroChem Questionnaire Response at 31. 274 See EuroChem Supplemental Response at 6. 34 VII. RECOMMENDATION

We recommend applying the above methodology for this preliminary determination.

☒ ☐ ______Agree Disagree 11/23/2020

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Signed by: JOSEPH LAROSKI ______Joseph A. Laroski Jr. Deputy Assistant Secretary for Policy and Negotiations

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