As the Russia-Ukraine war continues to disrupt global supplies, Nigeria now seems to be on the edge as speculations heighten around fertiliser shortages in the country and a consequent food crisis. NSIA which runs the Presidential fertiliser Initiative (PFI) has doused those fears, but says that even though Nigeria – which already battles an overstretched revenue base – may not suffer scarcity in the near term, it should brace up for obvious high costs. In this interview, UCHE ORJI, CEO, Nigeria Sovereign Investment Authority (NSIA) shares those views with ONYINYE NWACHUKWU, BusinessDay’s Abuja Bureau Chief, and warns that Nigeria must learn lessons and look inwards. Excerpts:
How much has the ongoing Russia – Ukraine war affected Nigeria’s fertilizer industry?
For fertiliser, there is no sugar coating it, there’s a problem, for Nigeria it’s not a problem for now, it’s a problem for later, if the current issue with Russia-Ukraine is not resolved by year end. Last year, we bought so much fertiliser that we ended up with so much excess, infact we had to extend Bank guarantees provided to us by fertiliser blenders. Remember that the fertiliser producers and suppliers went to meet the president last Tuesday and assured him that based on the fertilisers they have in the warehouses, there’s enough to meet almost 40 percent of our needs for the year, without bringing in any new product this year. That’s enough to start this season. This was because we brought in so much last year, we restructured the Presidential Fertilizer Initiative programme and so much fertiliser came in last year, which is very good, and it reduced pressure on our balance sheet as well. Last year we had an equivalent of 30 million bags produced and lots of it is still in the warehouses, and I can show you pictures of warehouses full of fertiliser, that’s number one.
Number two, this year, we went through our normal circle, we locked in our vessels, five vessels of phosphate from Morocco, and we also normally get about five vessels of potash from Russia. But because there is no storage in Nigeria, you can’t get all the five vessels at once, there’s no place to put it. We tend to sequence them one by one, so that once they land, blenders will clear, blend and sell. Obviously Russia war broke out, the company that we have an agreement with Uralchem, I think their chairman was sanctioned, consequently, we can’t deal with them, and we have discussions with other alternatives, Canada, Jordan etc. I am confident that we have advanced conversations with many other suppliers, and I expect that between now and the end of May, fresh vessels will arrive. I strongly believe that we will not feel the impact of any shortage of potash, as we have enough that will last past the when fresh vessels start to arrive, we will be okay. But the big issue is the price of new raw materials.
Can you explain the concession deal between Nigeria and Morocco, the status and whether there is some respite in view of the current global fertiliser shortage?
Beginning in 2016, the Nigerian government entered into a bilateral agreement with the Kingdom of Morocco for offtake of Di-ammonium Phosphate (DAP) at a concessionary price. The shipment of DAP to Nigeria actually began in 2017 ahead of that year’s wet season. We had concessionary rates from the first 4 years (2017 – 2020). However, the market has shifted on account of changes in gas prices and other macro-economic factors. From 2021, the raw material price has reverted to a commercial basis and based on our relationship we still get a discount compared to the global price index. This means that, that agreement has since then moved into a slightly more commercial term, that whole fixed price arrangement we had with them was for a short period of time, but now it’s a lot more commercial. But they give us a significant discount. This year, the price that we have locked in is 30 percent below the current market and they also gave us long deferred payment, so we don’t even need to pay until almost a year later, by then we must have blended and sold.
But the world has changed. Where we have a real problem is potash, which comes from Russia. Almost one-third of the world’s potash comes from Russia and Belarus. Nobody can tell me that he saw that Putin will invade Ukraine, nobody saw it, even the Ukrainians themselves didn’t see it. So far, we have done very well under the Presidential Fertiliser Initiative (PFI) for five years and nobody has talked about fertiliser shortage. We did so much last year that there are almost 8 million bags equivalent worth of fertiliser available in warehouses, the only problem is that not everybody has. Some people sold everything they had, some people couldn’t sell. So instead of having 70 blenders running around in the market, you may have much fewer than that, some people will say they don’t have, which is true. But there is fertiliser in Nigeria.
Like I said, the problem is that Russia is at war with Ukraine. What can we do? We are seeing the impact already globally, which was why in the sanctions, EU and America were careful that fertiliser is not included. But that message needs to work its way through the financial systems, because as it is now, you really can’t open Letter of Credit (LC) with Russia because everybody is afraid. But there’s a lot that we have done, and I’m not here to sugar-coat anything to you, we have gotten assurances from other sources that within the next two weeks, we can nominate vessels of potash and they can start coming. At the moment, we have 10 different leads on potash.
The whole world is chasing potash, we are not the only ones. I am almost very confident that we will start getting fertiliser in the next 6 weeks . But again, the problem is the price. The price of fertiliser is directly correlated to the price of natural gas.
Unless you have been living under a rock, you’ll know that natural gas is a big problem. A couple of Fertilizer companies in Europe closed down because of the price of natural gas. Two companies closed down last year in the UK, so when people try to make it a Nigerian problem, they need to understand that it is global.
Specifically, we heard that Morocco has cancelled the fertilizer concession it entered with Nigeria. Can you clarify this?
The NSIA’s MOU with the OCP of Morocco has not been cancelled. However, bilateral agreements only remain in force for the duration of the terms agreed by the parties. The initial concession between Nigeria and Morocco was for 3 years and spanned from 2017 – 2019. On account of Mr. President’s goodwill with the kingdom of Morocco, the concession was extended at renewal till 2021 with some innovation. The agreements have reverted to fully commercial terms since 2022. Under the PFI 2022 cycle, we had locked in 5 vessels as early as January 2022 in the normal course of business. This was done at a price that is 30% below current market price per ton and well before the Russia-Ukraine war began. Further, the deferred payment terms are a form of concession as it is beneficial to the Authority. Presently, two vessels of 42kMT each are inbound while the third vessel is underway. However, it is important to note that the terms of sales and purchase of Di-ammonium phosphate between both parties have overtime evolved from what it was at the start of the PFI program in 2017. This is based on several factors which include inflation, the COVID-19 pandemic etc.
Morocco continues to be very supportive and don’t forget that we are building a fertiliser plant with them here in Nigeria. That transaction continues, my team just came back from Morocco. Our relationship with Morocco hasn’t changed, it’s just the contract as it was. Morocco can’t sell you fertiliser at lower prices when they are buying Ammonia- a raw material used for making fertiliser at more than double the price before the Russia-Ukraine crisis. But if I can try to explain the Morocco deal and it’s very simple – we sit down with them early in the year, discuss, negotiate and they will advise us on when to buy. Last year, we entered into an agreement for five vessels, two vessels have arrived, one arrived in Lagos last week, another one arrived in Port Harcourt last Sunday, three more vessels are coming, price has been frozen, and it’s a deferred payment, so we don’t need to pay them until the end of the year, it’s a fantastic deal!
We were also told that four vessels of fertilizer phosphate are trapped as a result of the Russia-Ukraine war.
The Russia-Ukraine war has not in any way affected the importation of Di-ammonium Phosphate (DAP) into Nigeria and this is because this raw material is sourced from Morocco, not Russia. Therefore, no PFI vessels with phosphate have been trapped. Again, Under the PFI 2022 cycle, two vessels of 42kMT each are currently inbound while the third vessel is underway.
For potash, there are no four vessels trapped, what happened is that we have LCs that we normally open this time of the year. The LCs were opened and in the process of ‘advising’ the LC, Russia invaded Ukraine, the central bank’s assets of Russia were frozen, so they really can’t deal with anybody, those LCs were cancelled. So there’s no issue of four vessels trapped. We were not even at the stage of vessel nomination. Like I said earlier we have multiple sources of potash from Canada and other places and I am confident we won’t feel any shortage issues
In view of the feared shortages and high costs, how does the newly commissioned Dangote fertiliser plant come in?
There are four components needed to make fertiliser. For a plant to have a balanced diet, it needs any combination of at least four components. Dangote makes one, Urea. You hear us talk about NPK fertiliser, N is Nitrogen for Urea; P is Phosphate; and K is potash. You mix these products in different blends 20-10-10 (i.e 20 Nitrogen, 10-phosphate, 10-potash) or you mix it 15-15-15. Dangote and Indorama only make urea-Nitrogen, we still have to import phosphate from Morocco and potash from either Russia, Canada, Israel, Ethiopia or Belarus.When the President went for a conference, we entered into a deal with the Russians and we got some discount. Dangote does not blend, he sells urea only. Those that need to blend will buy urea from Dangote, potash from Russia and phosphate from Morocco and blend. It’s like when you want to eat rice and stew, you buy the rice from Dangote but you still need to buy other ingredients. But rice is the most important thing, Dangote’s urea is like making rice, but you still need to buy other condiments from other places to make the full meal.
Dangote’s project will be very important because the urea is the single most important and the biggest. But you still need to buy other things. For example, people that own palm plantations don’t use Dangote’s urea, they use potash mostly because that’s what palm likes to eat. But if you are doing rice, maize, wheat, you use plenty of urea, and that’s where Dangote comes in.
Which countries are you looking to source potash from?
We are looking everywhere – Canada and Jordan mainly, because our reliable supplier is at war. Even if they come back to us today, and give us potash, which I believe they will; the truth is that you cannot put all your eggs in one basket. And more importantly, we need to diversify our supply. The biggest wake up call for me is that Nigeria needs to develop its local potash potential. You know we have potash from Gombe through Benue. The President has given a directive to the solid minerals development fund to go and start working on developing our potash in Gombe through Bauchi all the way to Benue. The phosphate we are going to buy from Morocco is in Sokoto, we need to invest and develop it. The difference is that phosphate in Morocco comes in big rocks and ours comes in small pebbles, therefore, it needs a lot of work to develop. But we need to develop our own domestic industry now. And I believe that if we work hard at it for the next two years, we will be ready. Nigeria has no reason to be begging Morocco for a discount or going to Russia.
What’s the volume and value of phosphate that normally comes in annually?
In a year, the average number of vessels we use is five vessels. This year, like I said we have locked in those five vessels, two have landed and are discharging as we speak. And for the value, it depends on the market price, but it’s a hell more expensive now because that phosphate we are talking about is actually diammonium phosphate which requires ammonia to produce; and ammonia prices have quadrupled because natural gas prices have quadrupled.
