OSARO OMOGIADE is the managing director of Nosak Distilleries Limited. In this interview with ODINAKA ANUDU, Omogiade says the company has invested hugely in the Nigerian economy, with the latest being the ongoing backward integration project in Edo State.
Tell us about Nosak Distilleries
Nosak Distilleries is one of the subsidiaries of Nosak Group, a joint venture between Nigerian and Spanish investors who provided the technical expertise, particularly at the onset of the project with a 90/10 percent respective shareholding split. It was incorporated in January 2001 to manufacture ethanol and allied products and the first plant was commissioned in 2002 to produce food-grade ethanol. Ethanol is second to water as a major solvent. It is used by paint manufacturers, soap and perfume makers, pharmaceutical companies, manufacturers of alcoholic drinks and beverages. Ethanol is very important as a raw material for several vital products and for the economy.
How do you source your raw materials?
We source our raw materials from agricultural products. The basic thing about ethanol is that it is a product of fermentation. You can start from starchy materials and you can also start from sugar and molasses. If you want to produce ethanol, you can start from sugar, molasses, sorghum, cassava, potato, among others. The basic point is that the food-grade ethanol must come from agricultural sources.
When Nosak first started business several years ago, it started with the importation of finished (refined ethanol) products. But it got to a stage when we had to improve on the value chain. We did not have to continue importation of these products, but to start adding more value. That was the reason we set up this facility. So, we import the raw or crude ethanol for the purpose of refining to get the food-grade ethanol. Ethanol produced from fermentation has a lot of by-products like fusel oil, acetic acid, esters, methanol, aldehydes ketones, among others, that are not fit for human consumption. If they must be consumed, all of these impurities have to be removed— similar to crude oil. No one puts crude oil in their vehicle.
What you do is to refine it, then you break it into various fractions and have the PMS, AGO and the kerosene. It is the same thing with ethanol. You have the crude ethanol, but at that stage, it is not fit for consumption because of the associated impurities which must be removed to have the superfine or neutral ethanol. That is when you consider it fit for use for pharmaceuticals, alcoholic beverages and perfumes. No one wants to use a perfume that has a background odour. So, the ethanol you use in perfume must be superfine. If the ethanol is not purified, it carries a background odour, which is not good for use.
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Who are your biggest customers?
Our biggest customers are those making alcoholic drinks, wines and spirits, cosmetics, perfumery, paint makers, pharmaceutical companies and other industrial users.
What is your current production capacity?
In terms of capacity, we have a combined installed capacity of 500,000 litres per day. When we started in 2001, we started with a capacity of about 100,000 litres per day. But currently we have three plants in Lagos and the three of them have a total installed capacity of 500,000 litres per day.
Can you give us an estimate of the amount of investments Nosak Distilleries has made since it started in 2001?
The investment has been quite huge, but it is cumulative. Even as we speak now, we are still investing. Conservatively, to put up a distillery, let’s just say a 100,000-litre per day capacity distillery, you need at least $20 million to $25 million. By the time you start adding storage tanks and other utilities, the cost will have been more. So, put that amount in three places and you will be looking at over $75 million. This is just being conservative. So, it is a huge investment.
Tell us about your backward integration plans in Edo State.
We have commenced the process of setting up a backward integration project. We are setting up a fully backwardly integrated plant in Edo State. Currently, we are working with some foreign experts in the engineering, equipment design, and fabrication. It is our hope that
The Central Bank of Nigeria (CBN) plans to classify ethanol as not eligible for foreign exchange. Is this favourable or harmful to your industry?
The key question is, what is the current situation in the industry? The Federal Ministry of Industry, Trade and Investment, from its own statistics, says the annual requirement of ethanol in Nigeria is in the neighbourhood of 400 million litres per annum. Out of this, what is locally produced at the moment is between 7 and 10 percent. So, there is a huge gap. If you restrict the item from the foreign exchange market when the local capacity is just about 10 percent, how will the industry cope? If you restrict it from the foreign exchange market, you are indirectly encouraging smuggling because it is no longer available.
But here is the idea, there is a plan. In the next two years, you can ask, how will the industry have fared in backward integration? In two years, you can review it. And you do that in another two years. We cannot just move from seven percent to full capacity. It is not magic but we can give ourselves time. The industry players want to set targets for themselves, which was why we met the Ministry of Industry, Trade and Investment to discuss the key issues in the sector. Let’s see how we can raise it to 30 or 35 percent, and raise it further in another two years to 60 to 65 percent. But you have to give us time.
The major producers of ethanol in the world today such as Brazil still import. If the government goes ahead and implements the policy, people will struggle to get raw materials to produce. You can see the investment we have here. Imagine if we cannot get raw materials for our factories, the inevitable consequence is that people will lose their jobs and it will affect other manufacturers who use ethanol as part of their raw materials.
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But government might be proposing it to enable key players like you to look inwardly and invest in backward integration. So what is keeping the players away from investing in backward integration?
The problem is the common challenge, which is funding. I just told you that setting up a fully backward integrated distillery requires about $30 million. That is about N10 billion. That is just for putting up a 100,000-litre plant. It may even be more than the estimate I have given so far. How many banks are willing to give you the money for a period of seven years and at a single-digit rate? I am not sure of any except intervention fund managers like the Bank of Industry (BOI). Even the BOI has its own challenges. These are some of the challenges we face. The various organisations are trying to see what they can do. I know the government is also playing great role to enable access to agric and industry loans, but the greatest challenge is funding. We also have some other issues. For instance, land is also a major challenge in terms of dealing with the communities. These can always be resolved, but it still poses a challenge.
Have you been able to access any of the intervention funds?
We are working with some banks and other intervention funding institutions. We are focused on the backward integration. Already, we are processing land acquisition rich in cassava cultivation. We have contracted experts who are working on the feasibility of the project. We want to get the best, so we hope that it will be completed in two and a half years. We are looking at cassava, and we are willing to organise farmers into out growers.
Is Nosak ready for the upcoming African Continental Free Trade Agreement (AFCFTA)?
Let me even take you from the point of the Group. The Group’s presence in the export free trade zone is an indication that we are ready. We have resumed export to neighbouring West African countries, commencing with Ghana. It is an expression of our readiness. We believe in living global because of the associated advantages. If you do export, you will hedge against the foreign exchange problems. Government is shifting attention to non-oil exports, and ours are all non-oil products. To that extent, it will help in the derivation of foreign exchange for the company and the economy.
Are you planning to expand your export frontiers?
Yes of course. But if you must fly, you have to learn to walk. We have experimented with some neighbouring West African countries. After Ghana, we plan to go to other African countries. That has always been our roadmap to export to most African countries. We are also looking at other countries like Togo, Benin Republic, Cote d’ivoire, Angola and Central African Republic. Those are the countries we are looking at, and we have the capacity to do so. That is the strategic direction of Nosak Distilleries. Beyond playing in the country, we want to extend our frontiers to African countries, especially with the coming of the African Continental Free Trade Area agreement. If you do not do that, you leave the market for foreigners. When you look at the players around, you will see that Nigeria is possibly the biggest in the whole of Africa. So everybody must be ready.
Your industry is part of food/ chemical industry. What peculiar challenges do you face, and what should be done to solve these problems?
One of the major challenges is infrastructure. Most of our roads are not accessible. I am sure you spent more than three hours before accessing this place. In the same way, if we have products, goods and services to deliver, the turnaround time is longer than necessary. Where ordinarily you should spend two hours, you may end up spending 20 hours. Your customers sometimes may be unwilling to come because of the roads. Also, it adds to the cost. You spend more money on petrol or diesel as well as more time on the road. For a journey of two days, you spend one week. Infrastructure is a huge challenge. That is one area we need government intervention.
Power is also a challenge. But when we set out, we said to ourselves, ‘The power situation in this country is not so good. If we depend on the national grid, we might not have it easy.’ So we invested in gas generators. As we speak, we have over 5,000KVA gas generators. Beyond that, we also invested in diesel generators of over 2,000KVA. It is very expensive, but we are able to plan our operations. We are able plan, even though it hurts the bottom-line. It improves customer confidence. It will not augur well for the business if we keep explaining to customers that there has not been electricity for the past one week. That is why we have invested in power. In most countries, our investments in power alone are big enough to start an SME business.
