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Feyi Fawehinmi Follow
Accountant | Amateur Economistto print again.
| Wannabe Photographer | Tweets @doubleeph | Take the
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Jun 14 · 10 min read

Why Is The NSIA Involved In Fertiliser

Production? — A Conversation With
Uche Orji

“I lay hands on this fertiliser and declare that you shall grow and not die”

A couple of days ago, Nigeria’s sovereign wealth fund — NSIA — released

its audited annual report for 2017. Going through it, I saw something
that surprised and annoyed me — the NSIA, to put it simply, was doing
‘fertiliser business’. However you interpret its mandate, it is diFcult to
say this is the reason why it was established. So I did a series of tweets
based on what was in the accounts.

Agriculture is political in Nigeria today. It is a stated goal of President

Buhari so one is right to wonder whether another of the very few institu-
tions that was working has now been hijacked to implement the presi-
dent’s political vision just like how the CBN is now doing rice and poultry
business.

Anyway, Uche Orji, the CEO of NSIA, read the tweets and reached out
saying he wanted, not to try to change my mind, but to present their own
side of the story. A very long (and very polite) phone conversation later, I
feel it is good and proper to share what he told me. Since I have already
said my piece on twitter, I won’t add to what he said — I will simply
present what he told me below (I took notes during the call) so you can
decide for yourselves and more importantly, to aid understanding
around this matter in any way I can.

. . .

The History
Some agriculture masterplan somewhere in Nigeria from a while ago
had plans for fertiliser blending plants across the country. 32 of such
plants were established but as with many other things in Nigeria, they
have since been abandoned. He said he toured them and they were basi-
cally abandoned buildings with broken windows and everything else.
But he also said, surprisingly, he found that the machines were actually
ok and could be restarted at very little cost.

“I wore this because they told me it can start raining anytime in Nigeria”
Phosphate is the trickiest bit of the blending because Nigeria has to im-
port it and getting it isn’t that easy. There’s also urea which curiously is
produced in Nigeria by Indorama but exported and then Nigeria imports
urea from Belarus and other places. Anyway, the Moroccans (who are
looking for something) promised President Buhari a guaranteed supply
of phosphate at reduced prices. This guarantee meant that blending in
Nigeria became possible again — with phosphate from Morocco and urea
from Indorama, most of what was needed was sorted.

More technically, NPK 20:10:10, a standard fertiliser for Nigeria’s soil

mix, is made up of Di-ammonium Phosphate (DAP), Muriate of Potash
(MOP) — both of these are supplied by OCP of Morocco. Urea and lime-
stone granules make up 67% of the raw materials and are sourced locally
with Urea from Indorama and limestone granules form several suppliers
around the country. These imported materials account for 37% of the
components.

Pricing
Once the supply of inputs was in place, they built a pricing model and ar-
rived at N5,000 per bag. He said that this price allowed NSIA to make 5–
7% margin on each bag. The blenders were then allowed to add N500
per bag as their own margin for a total of N5,500 per bag. Before all of
this, fertiliser was averaging N11k per bag in 2016. I give NSIA credit
here — they de\nitely brought down the price of the product. Some
farmers paid more than N5,500 for a bag but he says it was mostly in ar-
eas where the blending plants had not yet been rehabilitated.

So if NSIA had built in a pro\t margin into each bag, how did they man-
age to sell fertiliser that cost them N33.5 billion for N31.4 billion accord-
ing to the accounts? He said that Nigeria happened.

He said that their \rst cargo came in February and the ship was o`-
loaded within 10 days and distributed to the blending plants across the
country. At this point the model was working and they were making a
pro\t. But then the rainy season came and messed everything up. It
turns out that the Apapa Port has no canopy facilities to oaoad dry bulk
goods. The phosphate from Morocco comes dry and absolutely has to be
discharged under dry conditions. At one point they were unable to dis-
charge for 45 days because the problem also a`ected wheat and other
dry stu` and of course the Apapa trailer problems causing all sorts of
delays.

Other problems also showed up. He said that the economic recession in
2016 meant that almost no truck was imported into Nigeria in that year
meaning they struggled to \nd any extra trucking capacity to move
goods across the country. The Mokwa-Jebba Bridge collapsed a few days
ago (click link for photos) but it also collapsed last year (more photos in
link) and was ‘\xed’. This bridge serves as an important link between the
north and the south of the country and it caused them severe delays
added to the ones at the port. In their N5,000 per bag model, they had
built in N450 per bag for transportation. All these issues wiped out their
margin and led to it costing them about N5,200 per bag which translated
to the N2.1 billion loss they made selling the product.

So I asked him — why didn’t you increase the price instead of selling it at

a loss? This is what any normal business would have done since the
N5,500 per bag was not written in law. He agreed and said they could
have but he analysed the problems as temporary and said they decided
to wait it out and see if things would improve. He says that they will keep
the price constant for two years (until end of this year) and then review
upwards if they \nd no way around the challenges. To this end, he asked
for an extra N6.6 billion (which was disclosed in the accounts) from the
presidency to cover any losses they might make this year. The presidency
also refunded them the N2.1 billion they lost last year so that NSIA does
not lose money on the project.

Random fun fact I found interesting — he mentioned that 75% of fer-

tiliser sales in Nigeria happen in June and July every year. This year the
rains have been delayed in the north so they have so far only sold 20% as
of today.

Outcomes and Alternatives

Again, to be fair to them — losing N2.1 billion is not the end of the world
given that they actually brought down the price of the product. It is a
subsidy but fertiliser subsidies usually cost a lot more than that. What is
also important to note is that they actually sold N31 billion worth of fer-
tiliser. That is, they sold it and collected that money in cash from farm-
ers. He says that before last year, the highest amount government ever
collected from fertiliser sales was about N11 billion. The fertiliser is now
sold on a cash and carry basis as opposed to allocating 2 bags to each
farmer as in the past. He says that some farmers now buy a whole truck
as a result.

He mentioned that even with all that, they had some stock unsold as
they were able to supply more than the market demanded.

As to the logistic challenges. They tried using the trains o distribute the
product from Lagos to Funtua but it took 20 days to get there. He said the
people in Funtua saw a working train for the \rst time in about 30 years.
This is obviously not a sustainable solution so they have also been trying
out the Onne Port as an alternative to Lagos. While it is a marginal im-
provement on Lagos, it comes with its own challenges. For one thing,
Onne is set up for oil and gas so they have had to make adjustments for
shipping in dry goods. They have so far been able to discharge 42,000MT
from there. Warri is not an alternative as there are so many oil pipelines
under the water meaning a ship carrying that weight cannot dock there
(it needs a clearing of 12 metres and Warri only provides 6 metres). Cal-
abar also has similar issues with the waters not deep enough.

Why NSIA, Why Fertiliser?

But why is NSIA doing fertiliser? Most sovereign wealth funds don’t even
have a mandate to invest in their local economies. He cheekily referred
me to an article I wrote about the SWF in 2012 when it was established
and pointed out that section 41(5) of the act allowed it to invest up to
10% of its funds in ‘social infrastructure’ projects. That’s the technical
answer. The non-technical answer he gave is that this is something that
needed to be done and he felt they could do it. He was also honest
enough to say after 2 years they will assess and if they have failed, he will
admit defeat. But he says so far the signs have been good — he credits the
fertiliser programme for some of the fall in infation that has happened
over the last year and the better harvest recorded last year. He also men-
tioned that imports of trucks has gone up. Jobs have also been created by
the blending plants (14 revived so far) mostly taken up by people who
were doing nothing before.

But something he did not say occurred to me as we spoke. His \rst de-
gree was in chemical engineering which gives him a bias towards a
project like this. He spoke in very technical terms about petrochemicals
that made me realise that it de\nitely infuenced him in taking on this
project. Before leaving Nigeria, he also worked at the National Fertiliser
Company of Nigeria (NAFCON) during his NYSC. So he sees petrochemi-
cals as a platform industry playing an important role in the economy. I
will explain this further below. But suFce to say, this is a fairly big part of
the reason why the NSIA is doing this.

I asked him how much of his time as CEO of NSIA is being taken up by
the fertiliser project and he was honest enough to admit that it took up
far too much of his time in 2017. As you can see from the detail de-
scribed above (the call lasted 1 hour and 36 minutes), for the CEO of
NSIA to know the intimate details in this way surely means he spent a lot
of his time on it. But he also said 2018 has been much better and he’s so
far been spending much less time on fertiliser.

Long Term Play

He says the fertiliser project is only an opening into a much bigger petro-
chemical platform for Nigeria. The phosphate imported from Morocco is
coated in ammonia. That ammonia is imported from Western Canada
and takes 14 days to get to Morocco. The Moroccan company, OCP, is the
biggest buyer of ammonia in the world. A few days ago, NSIA and OCP
announced they had signed an agreement to build a plant that will sup-
ply OCP with all the ammonia it needs. This will cut down the shipping
time to 6 days from Nigeria. The plant is to be 1.5 million MT and will
cost anywhere between $750 million to $1.2 billion (including construc-
tion of export facilities). The ammonia will thus be shipped to Morocco,
used to coat the phosphate and then shipped back to Nigeria. This is his
long term goal/dream. Nigeria has more than enough gas being wasted
to make ammonia. In describing this vision to me, it was Uche Orji the
chemical engineer that was talking.

Naturally, I asked him about Dangote who is of course building a giant

petrochemical plant in Lagos. He says that Dangote and Indorama also
produce ammonia but they use it for their internal consumption to pro-
duce urea for export. Even at that, he thinks that there is room for 10
petrochemical plants in Nigeria and that a petrochemicals industry is ab-
solutely vital for national development (this was again the chemical en-
gineer speaking and to be fair, I will also tell you that economists are
vital for national development).

I also asked about the $3.7 billion deal OCP signed with Ethiopia in 2016
to build a fertiliser plant there. I wondered if there was an overlap with
the smelly ammonia plant he’s planning for Nigeria and he explained
that the fertiliser plant is mostly to meet Ethiopia’s local consumption.
 “Trust me, once you close your eyes and think happy thoughts, ammonia actually smells
like perfume”

The point of all this is to say that even if the fertiliser project is a political
one, Uche Orji (the chemical engineer) is quite passionate about it. So,
however the decision was made to get NSIA into the fertiliser business,
he was willing to do it. It was not something that was forced on them in
my view — the whole business of mixing urea with phosphate and mak-
ing smelly ammonia is something that he cares about a lot professionally.
He did not tell me this part — it is my own conclusion I arrived at from
the conversation.

. . .

Does this answer the questions about NSIA doing fertiliser runs? I leave
that to you to judge. But he said he simply wanted to explain the NSIA’s
side of the story and accepted that asking questions as to why they are
doing this is very valid (I say again that he’s a very polite guy and even
though I took a dig at him in my 2012 post, we simply laughed it o`).

He believes that there was a unique opportunity to solve a problem and

decided that NSIA could do it. He admitted that there have been an in\-
nite number of challenges in getting it done and there were a number of
things he never anticipated that messed up their model leading to the
losses they incurred on the sales. He has thus tried as best as possible to
balance all these by ensuring that the NSIA itself does not lose any
money while at the same time getting out the product to farmers.

The verdict is yours.

FF