ftotinvestmentneed(millinnsofUSdollars)andcapacity(tonsperday_) AlternativeAAlternativeBAlternativeC
p ro Total invest- NHP0UreaD&Pment
Total invest- HH'Po0sUreaDAPmentNH capacity8001401000230
1500 2 000^ 600 230
rP0Ureaa/
Total invest ment 15002
oo<y
9003900- totalinvestmentllfl.O15-529-7172.4l66o0152.O22.1369.3186.0152,027.975.9441.8 capacity totalinvestmentd/110d/17015001104501701500110'3240 d/13.3d/7.721.0186.013.3-18.77-7225.7186,013-363-39.5272.1 capacity800500750800800500750800800500750300
total investment 136.0 38-0 25.1 15-7 214.8 136.0 38.0 25.1 15.7 214-8 136.0 38.0 25.1 15-7 214-8
totalinvestment210o0210.0 totalinvestment408.21019.81138.7 nexIH. dDAPunitsizesforWestandCentralAfricabasedon90percentcapacityutilizationoftheammoniaandphosphoric .itseachof500ton/daycapacity. .nitseachof1,300ton/daycapacity. ,tobesuppliedbytheunitinWestAfrica. ,ts(lt000and1,300ton/daycapacities),■.■Page 35
132. According to table 7 (derived from annex IH), the total investment requirements for each of the three alternatives work out to $US 410 million, 1,020 million and 1,140 million, the last two including about $US 210 million for the exploitation of the
Ethiopian potash deposit, a project which can be classified under alternative B as well as in C. Although very rough, and possibly on the low side, these estimates indicate orders of magnitude of the financial implications of developing the fertilizer industry in the three subregions with varying objectives: import sub-stitution and import subsub-stitution plus export of either intermediates or fertilizer - ■•■
materialSe
133. The above investment figures may escalate to &US 750 million, 1,900 million and 2,100 million towards the end of the decade, by which time the projects may
"be expected to be in operation if a decision for implementing them is taken early
enought, that is, in 1975/1976. From comparison of these figures with those based
on 1975 prices it is clear that the earlier action is taken the better - hence the urgency of early decision-making on the part of the countries in the subregions.
134» As stated earlier, the investment figures are, for the sake of convenience, based on a limited number of downstream facilities. Except for urea, there is room for increasing the number of converting units. Such units may be increased and facilities for granulating (including ammoniation), bulk blending and possibly producing liquid fertilizers may be added with a marginal increase in investment.
These units should be located in the consumption centres and should produce grades suitable for local needs*
135» The investment figures cover manufacturing and related off-site facilities only. No financial provision has been made for indirect investment in mining, transport and distribution and marketingo For mines already in operation (and in many cases undergoing expansion) additional financial need may not be crucial.
This applies to the transport of local raw materials from the mines to the
manufacturing sites which, on the basic assumption, should be adjacent to or near each other. With respect to new mines, provision for capita1, investment for the development of the potash mine in Ethiopia has been included (seo table 7).
136, With regard to the remaining items (discussed with transport and distribution in annex III), it will suffice to quote Mr. Becker-Boost of the World Bank Group statement
on marketing: "... it has been suggested that one dollar be invested in marketing for each dollar that is invested in fertilizer plants". 65/ *Tom this (although it is not clear what marketing comprises, as it excludes transport facilities) and the above rough and incomplete indications, therefore, it appears that providing related facilities may, depending on the development stage of existing infrastructure, more than double the investment figures arrived at above. In this connexion it should be pointed out that ocean and coastal transport of ammonia and phosphoric acid involves specially designed vessels much more expensive than dry cargo vessels in terms of both capital and operating costs. 66/
££/ Financial Implications of Meeting the Future Fertilizer Needs of Developing
Countries up to 1980, (ID/WG. 99/6/Rev. l)r pp. 18 and 1Q.
§§/ According to,an article in European Chemical News, vol. 25, No. 630
(5 April 1974)s p. 11, construction costs (US million dollars) for vessels transport
ing liquefied chemical gases have increased considerably in 1974 compared to 1970:
22,000 m^ vessel 11.5 19.0
52,000 m-3 vessel 20.0 32.7
E/CN. 14/INR/212 Page 36
137» A new client-contractor relationship that emerged in 1973 in the United States may prove to "be the trend world-wide, thereby confirming the high escalation factors implied in the preceding paragraph. According to the new arrangement the traditional lump—sum bidding has been replaced by cost-plus bidding. The latter means price ■ , on delivery., In other words, the client absorbs the risks of inflation. ;
Cost of production
Because of the many and varied factors involved, and lack of up-to-date information, no attempt has been made to prepare generalized production cost data.
An attempt has been made instead, to highlight the raw material and energy advantages of the subregions over the industrialized countries. It should be noted, however, that such advantages may be partly or wholly eroded because of the relatively higher investment, involving higher capital cost.
139- As mentioned earlier, the last few years have witnessed a rise in the
significance of raw materials in fertilizer making. The sulphur—free or low-sulphur natural gas which is being flared in most oil fields in Africa can provide important alternative feed and fuel for the fertilizer industry* A comparative economic study by L.J, Buividas et al. of M.W. Kellogg Co. on a 900 ton per day ammonia unit based on different feedstocks shows the decisive advantage of natural gas. Investment for facilities based on naphtha, heavy hydrocarbon and coal is respectively 1.15,
1.20—1.50 anc* 1° 75 times the investment for those based on natural gas. 67/ It
follows that, because of the higher capital charges arising from the higher invest ments, the cost of producing ammonia on the basis of equivalent cost per million Btu for feedstock is decisively the lowest for ammonia production.
140, In estimating ex-works prices, the authors of the study assumed natural gas
prices of 3US 0,10 per million Btu (as in the Middle East), SUS 0,50 (as in the United States and Europe in or before 1974) and #US l«00. These prices compare with the current price of $US 0.50 per raillion-Btu price for Algerian LNG0
141» At the above ex-works prices the feed and fuel costs wo±-k out to &US 4T 17 and 34 per ton of ammonia, corresponding to ex-works prices of |US 68, 86 and 102 per ton respectively,, Comparison of operating costs shows that up to a little over $US lo00
per million Btu (feed and fuel cost), natural gas has an economic edge over naptha and
fuel oil, and fuel oil in turn over naptha.
142- As the investment used in the calculations excludes allowance for location in developing countries, the manufacturing costs should be higher by the capital costs corresponding to the additional investments- Taking this into consideration, the
§2/ Chemical Engineering. 28 October 1974, pp. 52-53.
Chemical and Engineering News, 2 September 1974» P»
3-According to Kellogg President Clark P. Lattin Jr., a partial oxidation .plant -.
based on fuel-oxl-would invoivVa 40"per cent higher capital cost, a 40 per cent higher . operating labour requirement and a 100 per cent larger land requirement, the
corresponding figures for a coal gasification .plant -being 100-125f 100 and 200 (European Chemical. News, vol. 27, No. 692 (27 June 1975)> P- 38*
E/CN.14/INR/212
Page 37
&US 0.50 per million Btu price was considered "to be the maximum natural gas price in developing countries to allow for export of ammonia to the industrialized
countries, 68/
143. According to another source? however, the United States natural gas price referred to above was raised to &JS 1,25 per thousand cu ft (assumed to be equivalent to ono million Btu) In 1974, This, coupled with the objective of Algeria (a leading exporter of LNG) to peg the LNG price at a level equivalent to that of other sources of energy (&US 1,50-3.90 per million Btu). 69/ should further enhance the advantages of natural gas as feedstock for the fertilizer industry in
developing countries..
144. -n short3 increases in raw material costs (depressed prices having prevailed up to 1973) have considerably escalated the cost of production of fertilizer inter mediates and SateHals in industrialized countries. In the United States, for instance, the rise in the cost of natural gas from 8US 0,50 per thousand cu ft in WJ to #J* 1.25 per thousand cu ft in 1974 raised the share of natural gas in the cost; of acsnonia from 24 to 34 per cent and that of the price of urea from 40 to 54 per cent, JO/ As re^rds phosphoric acid, the bill for raw materials for
wet-process phosphoric acid - whose production cost, unlike that of ammonia, is relatively insensitive co capital investment - increased from the previous 70 per cent of the battery Iimi, production cost in Europe to over 90 per cent in 1974. Jl/
Indications of orders of magnitude of production costs of some fertilizer
Sfr^i8. "b°en P--- V ^e World Eank. Jg/ A large scale MP plant in
Borta Africa starting operation in 1977 has been estimated to require total invest ment of WS 20; per -.on of actual output per year. At 1977 prices, the totalproduction cost ^including a 15 per cent return on investment)worked out at SUS 185 per
;°n; Ztt f?;renP°?aine ^roduction °ostfl for MP and triple merphosphate were found
to be 5CTS ±yo and 5J3 130 per ton respectively. It appears that these production costs were baee^ on raw material prices prevailing in 1974* rnmely about #US 42 per tonforp,ofiPn^e rock, V03 40 per ten for sulphur f.o.b. United States Gulf and
#DS O.,O per fflilUon Btu for natural ^,St As annex IC shows, input prices have apparently risen appreciably since the World Bank study was undertaken.
* * Wja i i:°~aB e authors» "natural gas will continue to dominate as the
xeedetock ia Hortfc America and Europe at least until cost approaches Si.00 per million Btu, when heavy oils and coal will be seriously considered".
§2/
l, ^dneering. 2 September 1974S PP. 30 and 80..22/ 1£^ P* 8o- According to more recent information, the price of natural gas m the tfoited Sta-Gefl of Aii.-err.CG is expected to increase further to &US I.75 per thousand cu ft in 1975, Kuropog^Chemical News, vol. 27, No. 687 (23 May 1975),
po tC
11/ Efcropean^Cftqfflioal ffewg- vol. 26, No. 658 (18 October 1974), Chemscope
supplements p. 14. -..,.,
JZJ XB?J) Oommodity1 Pr.pcr Hcc 9
Page 38
146e Similar indications with the geo-rioh Middle
ton of urea per year (00
the cost of production of
ten than the corresponding cost y