Kenya opts to go it alone in setting up fertiliser factory

Kenya has decided to go it alone in setting up a fertiliser production plant in the face of a frustratingly slow approval process in East African Community partner states Uganda and Tanzania that had been approached to participate in a joint venture.

The government plans a feasibility study on the plant’s viability in the next two months at a cost Sh70 million. The study is expected to be completed by June.

Experts have warned that such a project would be very expensive for the country to undertake on its own.

Agriculture permanent secretary Dr Romano Kiome confirmed the feasibility study would go ahead, adding the government has held discussions with Uganda and Tanzania and development partners.

Reliable sources who spoke to the Sunday Nation on condition of anonymity because of the sensitive nature of the matter, also said the government has been consulting international fertiliser producers and financiers about the possibility of setting up such a plant.

“The feasibility study will determine the way forward. We decided to initiate the project as a government after the other countries in the region were slow in responding to our initiative. The others can join later,” said a source in government not authorised to speak to the media.

The idea to building the factory is not new. When reading the 2008 Budget then Finance minister Amos Kimunya said Kenya was consulting with Uganda and Tanzania on the funding and location of a regional fertiliser production plant.

“We are in consultation with Uganda and Tanzania on setting up a regional fertiliser factory to ensure long term sustainable (fertiliser) supplies,” Mr Kimunya said.

If the project takes off, it would be the third time Kenya has tried to set up such a factory. The most controversial attempt was a 1975 initiative in which the government entered into a joint venture with N-Ren, an American firm, to set up KenRen Chemical and Fertilisers Ltd.

KenRen was to manufacture fertiliser for domestic and export markets.

It signed financing agreements with Austrian and Belgian banks and suppliers, with the Kenya government as guarantor.

The suppliers were Coppee Lavalin of Belgium and Voest Alpine of Austria. They never delivered any equipment “except for some crates whose contents were not verified.”

Three years later, the project collapsed, and KenRen went under. The government, as a guarantor, became responsible for the debts which have been the subject of investigations and heated debates in Parliament.

The rationale for building a local factory stems from the constant complaints by farmers over the high cost of fertiliser, which has cut into their revenue.

But experts in the agriculture sector say the establishment of the factory could be hampered by the fact that production would depend on imported raw materials that might not necessarily translate into lower costs for fertiliser.

“The tricky part in establishing the fertiliser plant is that it will have to rely on imported raw materials.

As long as we are importing, we might not be able to bring down the prices unless production is in bulk,” said James Nyoro, an agribusiness expert.

The revelation comes ahead of a two-day national fertiliser conference scheduled for February 9-10, 2011, whose objective is to bring industry players together to discuss issues related to fertiliser.

The conference will be attended by players in fertiliser and seed sub-sectors, including farmers, farmer organisations, extension service providers, agro-dealers, research institutions, fertiliser supply companies, international fertiliser institutes, regulatory bodies, consumer organisations and financiers.

The issue of establishing a production plant will be on the forum agenda. Mr Kiome said. Other issues include national fertiliser consumption levels and escalating prices.

The conference will be the seventh on fertiliser held in Kenya.

“One of the resolutions during the sixth national fertiliser conference was that the event should be held annually, so as to keep abreast with the changes that are ever taking place in the fertiliser industry,” said an advertisement in last Friday’s Daily Nation.

Some of these changes, it said, include the high international and local fertiliser prices and price fluctuations, continued subsidies on farm inputs to poor small-scale farmers, and public-private partnerships in credit and insurance provision in the promotion of farm inputs.

Kenya has the highest fertiliser consumption rate in East Africa; it is estimated at 500,000 metric tonnes per year compared to 25,000 tonnes for Uganda.

But although Kenyan farmers use 25 kilos of fertiliser on average per hectare compared to only 8 kilos in the continent, consumption is way below the required 75 kilos per hectare, Mr Nyoro said.

Compared to South Africa, which uses between 80 kilos to 100 kilos per hectare, Kenya still has a long way to go to successfully promote fertiliser usage to increase production.

Part of the problem, Mr Nyoro said, is the escalating price of fertiliser.

For example, 10 years ago a bag of fertiliser cost Sh1,200, which was equal to the cost of a bag of maize.

But the situation has changed with price of fertiliser doubling compared to that of maize.

“The challenge the country is faced with is how to bring down the cost of the product to make it commensurate with the price of commodities like maize and wheat,” he said.

He added that inefficiency at the port of Mombasa contributes to high local fertiliser prices in the country.