BPE January 8, 2006

Federal Superphosphate Fertilizer Company limited (FSFC)

BACKGROUND

Federal Superphosphate Fertilizer Company limited (FSFC) Kaduna was incorporated as a limited liability company in 1973 with 100% Federal Government of Nigeria ownership. The Company, which is strategically located within the Southern Industrial Area of Kaduna, produces fertilizer in line with the Government strategy to develop and modernize the agricultural sector.

DESCRIPTION OF THE PRODUCT

In addition to its designed capacity of producing 100,000 tonnes of Superphosphate fertilizer per annum, the FSFC has also diversified into secondary line production of water treatment chemicals, hydrated lime and aluminium sulphate (alum).  The company produces 30,000 tonnes of aluminium sulphate per annum. It has a 42,000 capacity sulphuric acid plant from which it produces Super Sulphate (SSP). FSFC is one of the two prominent fertiliser-producing companies in Nigeria. The other being NAFCON. These products are very popular and in high demand among the consumers. The company hardly meets the demand of the products

In an attempt to financially restructure the company, FGN loan amounting to N4 billion has been used to write off the accumulated losses in 2003. ECOWAS loan amounting to N938, 924,782 has been taken over by FGN and converted to capital reserve as a prelude to eventual conversion to equity.

PRIVATISATION PLAN

The government is offering 100% of the company’s shares for sale to a core investor or a consortium of foreign and/or domestic investor with deferred public offer of 49% at a later date.

ENTERPRISE DATA

BUSINESS OPPORTUNITY

FSFC is the only plant in West Africa that produces Single Super phosphate Fertiliser (SSP) required for the production of leguminous plants grown in the northern parts of Nigeria and neighbouring African countries such as cowpea, Soya beans and groundnuts.  This opens several opportunities to the company as follows:

• FSFC is the only manufacturer of SSP fertiliser for local consumption
• Opportunity of export of SSP fertiliser to West African and other countries
• Satisfy the local demand for aluminium sulphate (alum), which was projected at 100,000 tonnes per annum
• Availability of local (highly skilled) technical staff
• Low substitution factor for the company’s products

FACILITIES

The company has facilities to produce:

• Single Superphosphate (SSP) fertilizer
• Aluminium Sulphate (Alum) for water treatment
• Sulphuric acid

FSFC had conducted research into other marketable products and had commenced production of same:

CORE AND EXTENDED USERS OF THIS PRODUCT

The core and extended users of the company’s products (fertilisers) are the millions of Nigerian farmers whose demand the company hardly meets and for the sulphuric acid, the users are:

Further opportunity to sell sulphuric acid to other industries

• Kaduna Refinery
• Katsina Rolling Mill
• Jos Steel Rolling Mill
• Soap and detergent factories and
• Automobile battery manufacturers and chargers
• Educational institutions

TECHNICAL DEVELOPMENTS IN THE COMPANY IN THE LAST FIVE YEARS

The refurbishment of the SSP Plant that was funded by ECOWAS since 1994 was eventually carried out and completed in 2003. In addition a Cat pay loader was purchased as well as the importation and delivery of parts and equipment for the revamping of the alum plant.

PERFORMANCE OF THE ENTERPRISE

FIVE-YEAR FINANCIAL SUMMARY

COMPETITIVE RANKING AND LEADERSHIP POTENTIAL

There is little or no competition in the fertiliser industry in Nigeria. FSFC and NAFCON are the major and primary fertiliser manufacturing companies. While FSFC is the only manufacturer of single Superphosphate in the West Africa region, NAFCON is the only manufacturer of Urea compound fertiliser in Nigeria. The fertiliser industry is favoured with high entry barrier due to high capital outlay requirement, low level of competition, low bargaining power of buyers, (although, government would not encourage exploitative pricing), as well as moderate level of influence of strategic suppliers and low product elasticity as product substitution with other products is weak.

THE COMPANY’S STRENGTHS

FSFC is the only plant in West Africa that produces primarily the Single Superphosphate Fertiliser (SSP), which is a recommended fertilizer requirement for leguminous plants/crops grown in the Saharan part of Nigeria. In addition, these following attributes are noteworthy:

• A large market demand for the company’s product
• Extensive factory land area of 42.37 acres with about 65% developed
• Effective product distribution network
• Availability of raw materials at competitive prices
• Low product substitution of the company’s products

THE COMPANY’S CHALLENGES

•  Lack of a sulphuric acid unit, which is a vital chemical for the production of the single Superphosphate    fertilizer (SSP)
• Sulphuric acid is bought at the open market prices which causes the price of the company’s bagged products to be higher than imported products
• The discharge facility at Ijora Lagos needs to be upgraded. This is where imported phosphate rock and sulphuric acid are discharged.
• Inadequate water and power supplies from the State Water Board and National Electric Power Authority respectively
• Company is highly leveraged

PROSPECTS

• FSFC is the only manufacturer of SSP fertilizer with local consumption
• Revamping of the fertilizer plant will enhance production capacity from current production level of 8% to 100% production output.
• A fully installed sulphuric acid plant will reduce the cost of producing the SSP fertiliser.
• The complete rehabilitation of the Alum plant will enable the company tap business opportunities and potential demand for alum, which is currently 100,000 metric tonnes as at 2001
• Other potentials that have been researched by the company include commercial production of hydrated lime, copper sulphate, dicalcium phosphate, and soda ash.
• Potential selling excess sulphuric acid to users such as Kaduna refinery plant company, Katsina rolling mills, soap and detergent factories nationwide, vegetable oil producers and auto-battery manufacturers.