Everything You Need To Know About The Presidential Fertiliser Initiative (PFI)

How it started:

In December 2016 the King of Morocco, His Royal Majesty Mohammed VI, paid a 2-day state visit to Nigeria. He was hosted by President Muhammadu Buhari, in Abuja. During the visit, the two leaders oversaw the signing of several agreements. One of these was conceived as Partnership between the Fertiliser Producers and Suppliers of Nigeria, FEPSAN and OCP, a state-owned Moroccan company and a world leader in phosphate and its derivatives, in which OCP would supply discounted phosphate to Nigeria, to help support the domestic blending of NPK Fertiliser starting in 2017.

Following the signing of that agreement, the stage was set for implementation. President Buhari formally approved the commencement of the Initiative shortly after the Moroccan visit, and announced it in his #Budget2017 Speech on December 14, 2016. The stated goal was/is to achieve the local production of one million metric tonnes of blended Nitrogen, Phosphorous and Potassium (NPK) Fertiliser for the 2017 wet season farming, and an additional 500,000 metric tonnes for dry season farming.

This Is What Nigeria’s Fertiliser Situation Looked Like pre-PFI…

The Nigerian Fertiliser industry possesses a blending capacity of 4 million tons of NPK annually and 2 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. But, before the implementation of the PFI only 10 percent of the production capacities of the five blending plants in operation across the country were being utilised.

What this meant was that prior to 2017, most of Nigeria’s stock of blended NPK Fertiliser was shipped into the country as fully-finished products, even though Urea and Limestone, which constitute roughly two-thirds of the component of each bag, are available locally. To make the imported Fertiliser available to farmers at reasonable prices, a subsidy scheme was birthed, and which cost tens of billions of naira annually.

This Is How the PFI Is Altering The Status Quo:

Basically, the objective of the Presidential Initiative is to ‘disrupt’ this importation of blended Fertiliser status-quo, by directly negotiating discounted contracts to procure the 4 constituent raw materials for NPK Fertiliser — locally-sourced Urea, locally-sourced Limestone granules (LSG), Diammonium Phosphate (DAP) imported from Morocco, and Muriate of Potash (MOP) sourced from Europe — and blending these locally to produce NPK Fertiliser at reduced cost.

Constitution of a bag of blended NPK Fertiliser:

1. Urea = 36%

2. Limestone = 27%

3. Phosphate = 21%

4. Potash = 16%

Note that the PFI is concerned only with the production of NPK Fertiliser, which is what is known as a “multi-nutrient” Fertiliser. Other types of Fertiliser exist, like ‘Single Super Phosphate’, and ‘Urea’, which are both examples of “single nutrient” Fertilisers, and are already being manufactured locally in Nigeria. Urea — which apart from being a single-nutrient Fertilizer, is also a component of NPK, is produced by Indorama Eleme Fertilizer and Chemicals (IEFCL) Company and Notore Chemical Industries, both in Rivers State.

The discounts and savings accruing from the PFI negotiations with suppliers (OCP and by extension the Government of Morocco in the case of Phosphate, and private companies in the case of the others) are passed on to the blending plants and then the farmers. This is what allows the finished products to be delivered to Nigeria’s farmers at a starting price of about ₦5,500 per bag, compared to the ₦8,000 — ₦9,000 cost of imported fertilizer.

This is exactly how the PFI works:

Since the goal was to revive Nigeria’s well-below-capacity local blending industry, the usual thing to do would have been to ask the Central Bank of Nigeria (CBN) to provide a low-interest Intervention Fund to the blending plants, under the auspices of the Fertiliser Producers and Suppliers Association of Nigeria (FEPSAN).

Instead of directly disbursing the Intervention Fund to FEPSAN, the CBN has designated the Nigeria Sovereign Investment Authority (NSIA) to manage the 9 percent per annum Fund on behalf of FEPSAN. Because managing a Fertiliser Fund is not the NSIA’s core mandate, it established a Special Purpose Vehicle, known as NAIC-NPK Limited (where NAIC = ‘NSIA Agric Investment Company’), to carry this function out on its behalf.

As has been pointed out above, FEPSAN has already successfully negotiated substantial discounts with the suppliers/producer of the four main raw materials (the two from abroad, and the two sourced locally). For each batch of raw material required under the PFI, FEPSAN makes available to NAIC-NPK Limited the invoices from the suppliers.

NAIC-NPK Limited then pays the suppliers directly, on behalf of FEPSAN; takes delivery of the raw materials, and then supplies these raw materials to the blending plants, which it has already signed on as contract blenders. (For this contract-blending NAIC-NPK Limited pays the blenders a fee).

The blending plants then produce, bag and sell the finished, packaged fertilizer to Agro-dealers and State Governments at the cost of 5,000 per bag, and remit this revenue to NAIC-NPK Limited, for re-investment into the next phase of production. The PFI is therefore a self-sustaining revolving fund, in which the revenues are re-invested into subsequent production cycles.

To ensure that the blending plants do not default on their obligations to remit revenues to NAIC-NPK, they are required to submit to NAIC-NPK Performance Guarantees from their banks, as payment security for the raw materials they receive under the PFI. If they default, NAIC-NPK will swiftly move to redeem the Guarantees and recover its investment. The blending plants therefore have a responsibility to ensure that they fully collect their revenues from the buyers of the blended Fertiliser. Because of this, they make sure they do not sell on credit, and ONLY collect:

1. Cash advances from the Agro-dealers, and

2. Irrevocable Standing Payment Orders (ISPOs) from the State Governments, certified by the Federal Ministry of Finance.

NAIC-NPK and the Blending Plants will only sell to a State Government an amount of Fertiliser that corresponds to the value of its certified ISPO (some State Government have chosen to pay cash up-front, like the Agro-Dealers).

This price of 5,000 per bag at which the blending plants are mandated to sell covers the blending plants’ labour, cost of production, cost of packaging, interest costs (the 9% interest on the capital), etc, alongside a modest profit margin. The price modelling of the PFI was carefully done such that the 5,000 factory selling price covers the complete cost of production (recall that this is possible on account of the generous discounts already negotiated with the raw materials’ suppliers, by FEPSAN).

The discounts are therefore passed on from the suppliers of the raw materials straight to the end-users of the Fertilisers, i.e. the farmers — and not the blending plants or the Agro-dealers.

The Agro-dealers and State Governments then sell the blended Fertiliser to the end-user farmers at the cost of 5,500 per bag, which allows them to cover transport costs and make a modest profit. This is how the PFI is able to sell the finished product at 5,500 per bag, compared to the 8,000–9,000 naira per bag at which imported, finished Fertiliser is sold.

This Is What The PFI Is Not:

It is important to note that the PFI is not a subsidy scheme; there is no subsidy along the production chain. The reduced price of the blended Fertiliser arises not from subsidies but instead from the generous discounts negotiated by NAIC-NPK Limited with the suppliers of the various raw materials, discounts passed on all the way to the farmers as price savings.

In fact, the PFI has abolished the subsidy scheme that the Buhari administration inherited when it took office. That much-abused subsidy scheme cost at least 60 billion naira annually to maintain, an amount that can now be used for more productive purposes. (The Buhari administration inherited 62 billion naira in unpaid Fertiliser subsidy arrears. Only recently — March 15, 2017, precisely — President Buhari approved the release of the final tranche of 22 billion naira to clear the balance of this inherited debt).

It is also important to note that the PFI is a no-credit scheme. At no point along the chain are purchasers encouraged or allowed to buy goods on credit. At every step of the way there is an advance cash payment or bank guarantee or ISPO that works to maintain the integrity of the chain, and ensure that every kobo invested is retained.

The PFI is also not a case, as some have alleged, of the Federal Government competing against the private sector. Instead it is the Federal Government partnering with and enabling and supporting the private sector to deliver low-cost Fertiliser to Nigeria’s farmers. The PFI is a Public-Private Partnership that has resulted in the resuscitation of several comatose blending plants, taken them to/near full capacity utilisation, and is creating tens of thousands of jobs and saving tens of millions of dollars in FX and tens of billions of Naira in subsidies.

This is What The PFI Is Achieving:

1. Securing a supply of quality Fertilisers by bringing in raw materials required for the production of the item in line with the crops and soils adaptable to Nigeria.

2. Stimulating local production of NPK Fertiliser by resuscitating moribund Fertiliser plants, and reviving the local blending Fertiliser industry.

3. Making Fertiliser available to Nigerian farmers at affordable prices and in time for the 2017 wet and dry season farming.

4. Projected savings of US$200 million in foreign exchange, and ₦60 billion in budgetary provisions for Fertiliser subsidy.

5. Enhancing food security as a result of the expected increase in food production

6. Reducing food-induced inflation and stimulation of economic activities across the agriculture value chain.

7. Creating thousands of direct and indirect jobs — so far a minimum of 1,100 factory jobs; and 2,600 transport jobs (truck drivers and drivers’ assistants). For each truck involved in the PFI — and there are more than 3,000 trucks — 15 day labourer jobs (loading and offloading) are created.

8. Strengthening capacity to ensure a timely supply of quality Fertilisers in adequate quantities and in a cost–effective manner to rural areas as well as an efficient supply chain and improvement of logistics management, including warehousing and transportation services; and strengthening the agricultural extension services system.

9. Stimulating product innovation and development through the deployment of the Moroccan expertise in producing scientifically recommended formulae adaptable to the needs of the Nigerian soil.

One More Thing. This is the PFI in Dates and Numbers:

December 2, 2016: Signing of the Phosphate Agreement between FEPSAN and OCP, on behalf of Nigeria and Morocco respectively.

February 4, 2017: First shipment of potash arrives Nigeria from Europe (Second shipment arrived early March)

February 12, 2017: First shipment of Moroccan phosphate berths at the ports in Lagos. (Second due at the beginning of April)

February 14, 2017: First output of blended NPK Fertiliser rolls out under the PFI

February 2017 — July 2017: Duration of the 5 cycles of the PFI that will produce a total of 1 million metric tonnes of blended NPK for wet season farming across Nigeria

September 2017 — December 2017: Duration of second segment of PFI, that will produce a total of 500,000 metric tonnes of blended NPK for dry season farming across Nigeria.

One million: Number of metric tonnes of NPK Fertiliser that the PFI will deliver, in 5 batches of 200,000 metric tonnes each, between February and July/August 2017, for wet season farming across Nigeria. Production of the first batch is expected to be completed by the end of March.

500,000: Number of metric tonnes of NPK Fertiliser that the PFI will deliver, starting in September 2017, for dry season farming across Nigeria.

20 million: Number of bags required for the packaging of the blended Fertiliser to be produced by the PFI in 2017

A Summary of the Key Players in the PFI:

· The Fertiliser Producers and Suppliers Association of Nigeria (FEPSAN): Industry group; umbrella body of Fertiliser producers and suppliers. FEPSAN designed the PFI, in collaboration with the Presidency. It also signed the Fertiliser deal with OCP, on behalf of the Government of Nigeria)

· OCP (State-owned Moroccan Phosphate company, on behalf of the Government of Morocco)

· The Presidential Committee on Fertilizer Initiative (PCFI), established by President Buhari in 2016, under the Chairmanship of the Governor of Jigawa State, Alhaji Mohammed Badaru Abubakar, and including the leadership of FEPSAN.

· Central Bank of Nigeria (CBN)(Provided the Intervention Fund that served as seed capital for the PFI, and is used to open the required Letters of Credit for the suppliers of the raw materials)

· NSIA (The Nigerian Sovereign Wealth Fund), operating through a Special Purpose Vehicle, NAIC-NPK Limited.

· The Federal Ministry of Agriculture and Rural Development, which inaugurated an 11-member National Fertiliser Technical Committee (NFTC), in March 2016

· The Blending Plants accredited under the PFI — currently 11 plants, with a plan to reach about 20 by the end of 2017

· The Agro-Dealers and State Governments who off-take the finished products from the Blending Plants and retail to the farmers

Conclusion

Beyond the broader goal of ensuring food security for the country by providing high-grade fertilizer to enhance harvest in the 2017 farming season, the Buhari Administration is by this initiative reinforcing its commitment to reviving and diversifying the economy, and creating growth, through a focus on agriculture.

Source: Medium Corporation [US]