Restructuring Fertiliser Initiative for Better Output
Against the backdrop of a directive by President Muhammadu Buhari to undertake an overhaul of the Presidential Fertiliser Initiative, the Nigerian Sovereign Investment Authority saddled with the task, taking up the gauntlet, has recently gone to work, writes Emmanuel Addeh
It is said that the Nigerian fertiliser industry has a blending capacity of four million tons of Nitrogen, Phosphorus and Potassium (NPK) annually and two million tons of production capacity for urea, with the capacity to employ over 250,000 people in both direct and indirect jobs across the country.
However, before the implementation of the Presidential Fertiliser Initiative (PFI), only 10 per cent of the production capacities of the blending plants in operation across the country were being utilised.
Prior to the initiative, what the piece of information showed was that most of the country’s stock of blended NPK fertiliser was shipped into the country as fully-finished products, although urea and limestone, which constitute roughly two-thirds of the component of each bag, are available locally.
Dissatisfied with the situation, the PFI was initiated to reduce or fully half the importation of blended fertiliser and the initiative appears to be a huge success.
To this end, the Nigeria Sovereign Investment Authority (NSIA) was mandated to manage the fund and because it wasn’t the NSIA’s core mandate, a Special Purpose Vehicle (SPV) called NAIC-NPK Limited was established.
In order to ensure that the blending plants did not default on their obligations to remit revenues to NAIC-NPK, they were required to submit to NAIC-NPK Performance Guarantees from their banks, as payment security for the raw materials they receive under the PFI.
However , a few clarifications need to be made to the effect that the presidential initiative is not a subsidy scheme as there is no subsidy along the production chain.
The reduced price of the blended fertiliser arises from the generous discounts negotiated by NAICNPK Limited with the suppliers of the various raw materials, discounts passed on all the way to the farmers as price savings, it was learnt.
While it is said that the previous subsidy scheme cost at least 60 billion naira annually to maintain, an amount that can now be deployed for more productive purposes, the Buhari administration reportedly inherited huge sums in unpaid fertiliser subsidy arrears.
In the same vein, the federal government is not competing against the private sector, but is partnering with and enabling and supporting the private sector to deliver low-cost fertiliser to Nigeria’s farmers.
Without mincing words, it can be said that through the NSIA programme, the federal government is securing a supply of quality fertilisers, stimulating local production, making fertiliser available to Nigerian farmers at affordable prices and in time for the farming season.
To remove all doubts, the scheme has also succeeded in enhancing food security as a result of the expected increase in food production, reduced food-induced inflation and stimulation of economic activities across the agriculture value chain.
But beyond the broader goal of ensuring food security for the country by providing high-grade fertilisers to enhance harvest, what the NSIA has achieved is to reinforce the present administration’s commitment to reviving and diversifying the economy, and creating growth by focusing on agriculture.
In this connection the NSIA has said it has saved over $350 million from the erstwhile payments on subsidy and import substitution through the implementation of the initiative.
The authority also said it had begun implementing the directive for the restructuring of the presidential fertiliser initiative, which it added had started to yield great returns.
Recall that a bid to make the programme more sustainable and following its notable successes and transformative impact over the past four years, the presidency approved the restructuring of the PFI programme starting in the 2021 cycle with various modifications.
Under the modifications, the NSIA has been transitioned to an upstream player thereby limiting its involvement to importation, storage and the wholesale of raw materials to blenders.
The NSIA subsidiary NAIC-NPK Limited will be spun off to the ministry of finance incorporated.
Under the new arrangement, blenders will no longer be paid blending fees by NAIC-NPK as they will recover their costs directly from selling the fertiliser to the market.
This, according to the government, will balance the incentives of the business and ensure the blenders build the right capacity to actively participate in the local supply sub-sector. The blending plants are expected to provide bank guarantees to cover requisitioned raw materials demand that are appropriated for their respective production volumes.
As part of the new structure and in line with the presidential directive, the federal ministry of finance, budget and national planning and the Central Bank of Nigeria (CBN) are expected to engage commercial banks to facilitate lines of concessionary credits to blending plants for the purchase of raw materials.
It is also expected that the CBN will ensure that the foreign exchange needed for the programme is provided as and when needed to cover some raw materials The approval, which takes effect immediately, was communicated in a letter through the Office of the Chief of Staff to the President which was issued in November of 2020. Under the new arrangement, blenders will be responsible for bulk of the activities in the fertiliser production value chain such as transporting the raw materials,
sourcing filler, blending the fertilizer, and selling to off-takers.
Also, the federal ministry of agriculture and rural development will perform its statutory monitoring and quality control role over blender activities.
The benefits of this new approach include but not limited to unlocking of more development finance (loans and investments) into the local fertiliser blending value chain of Nigeria.
It would also strengthen market systems and encouraging actor participation. This will lead potentially to mergers and acquisition and innovation and growth across the industry which will benefit farmers.
The new approach would further reduce food price inflation in the market as the availability of fertiliser will drive down the price or cost of food product.
It is also expected to reduce the high rate of unemployment as more people will become engaged in the production process.
Commenting on the impact of the programme, the Chairman, Implementing Committee of the PFI and Executive Governor of Jigawa State, Governor Abubakar Badaru said that the scheme has further boosted the agricultural base of the country as well as eliminate the wasteful subsidy programme that was previously be practiced.
“The programme has in many ways served to augment the administration’s policy-driven programmes to diversify the Nigerian economy.
“In the main, the programme has bolstered Nigeria’s industrial base, resuscitated, and strengthened domestic production capacity for fertiliser, eliminated to the huge fertiliser subsidy burden placed on federal government, created thousands of direct and indirect jobs and alleviated the plight of the domestic farmer by ensuring availability of fertiliser.
“Clearly, the programme is a strong value proposition for the nation in the agriculture space given the variety of socio-economic benefits it presents. We are grateful to Mr. President for creating this programme and look forwards to supporting the next phase as it evolves,” Badaru stated.
Also speaking on the development, the Managing Director and Chief Executive Office of NSIA, Mr. Uche Orji, said with the support of the president, the programme has accomplished its principal objectives.
“Having fulfilled the establishment, stabilisation, and market discipline phase of PFI, the primary objective of which was to revive the blending plants and create a viable domestic blending industry, we believe the PFI should gradually evolve into the next phase, which is a tactical withdrawal of intervention in the industry and the emergence of a self-sufficient, sustainable, and efficiently operated market.
“NSIA is pleased with the government’s decision and looks forward to seeing the innovation and creativity which will characterise the open market in the sector,” he said.
On his part, the Chairman, the Fertilizer Producers and Suppliers Association of Nigeria, (FEPSAN), Mr. Thomas Etuh, in his remarks, explained that with the initiative, massive production can now be carried out nationwide.
“The new approach will afford operators the opportunity to build recognisable and trusted brands while ramping up distribution nationwide,” he stated.
Within four years of the initiative, according to the NSIA, the programme has delivered on key outcomes including over 30 million bags of 50kg NPK 20:10:10 equivalent spanning project period and price reduction on fertiliser from over N10,000 to under N5,500.
It also said 41 blending plants have been resuscitated from an initial number of four plants at project inception, adding that an estimated 250,000 jobs (direct and indirect)across the agriculture value chain including in logistics, ports, bagging, rail, industrial warehousing, and haulage touch points amongst others have been created.
It also said food security has been achieved by facilitating increase in domestic food production through the provision of affordable, high quality fertiliser.
Recall that recently, in a bid to boost local fertiliser production, the NSIA signed agreements with an offshore firm, OCP of Morocco, Akwa Ibom State Government, the Nigerian National Petroleum Corporation (NNPC) Gas Aggregation Company of Nigeria, (GACN) to ramp up fertiliser production.
Also in the mix were the Nigerian Content Development and Monitoring Board (NCDMB), Mobil and Fertiliser Suppliers Association of Nigeria (FEPSAN) which was geared to the development of a $1.4 billion plant to produce ammonia and di-ammonium phosphate, under the Nigeria’s Gas Industrialisation Strategy initiative.
While the first phase of the project is expected to produce 1.5 million tonnes per annum of ammonia in two phases, up to 70 per cent of the ammonia produced will be allocated for export to Morocco and the balance will be routed to the production of 1 million tonnes per annum of Di-ammonium Phosphate (DAP) and NPK fertilisers to feed domestic demand. It is also expected that the project construction would commence no later than Q3, 2021, and would in the first phase of the project, see the investment of $1.4billion will in building the plant and its supporting infrastructure with a target operations-commencement date of 2025.
With all the ongoing initiatives, fully backed by the NSIA, it is just a matter of time before Nigeria becomes fully self-sufficient in agriculture and by extension food production.