Government mulls fertilizer plant with caution

Kenya is constructing a Sh27billion fertilizer factory starting next year, expected to cut fertilizer prices by up to 40 percent while bridging the acute supply shortfall that has been blamed for poor food production and ultimately the precarious food security situation in the country.

The factory to be located in Mombasa will have an annual production of 350,000 tonnes, and is a welcome relief to farmers majority of who have long grappled with delayed or no planting as access to fertilizer becomes impossible. This is attributed to high prices of the imported fertilizer which is not enough for the growing demand. While Kenya's current fertilizer consumption is between 600, 000 and 700, 000 metric tonnes a year, there is potential that this will grow to between 1 and 1.5 million tonnes a year.

Though Kenya is not well endowed with fertilizer raw materials, a feasibility study by scientists shows that there are unconfirmed deposits of rock phosphate in Mrima hills at the coastal region and at Nyanza and geologists have returned a positive feedback on the viability of the project

We have invited stakeholders next week to see how we can attract investors. With the discovery of oil and possibility of finding more crude and gas in the Coast region, we shall need nitrogen and phosphate that will come from the Kenyan and Tanzanian deposits. Mombasa is the ideal location for ease of exports,” said Agriculture Permanent Secretary Dr Romano Kiome in a conference.

Accessing fertilizer for Kenyan small scale farmers has been a thorny issue over the years and it has been considered one of the main reasons contributing to poor food production in the country.

And though the government has made strides in subsidizing fertilizer, only about 60% of farmers are able to get it.

 However the factory is unlikely to bring down the cost of fertilizer because it would still rely on imported raw materials experts in agriculture say.

The government is also facing a perception problem after an earlier fertilizer project known as Ken-Ren became a white elephant.

The Ken-Ren Fertiliser Factory was a joint venture entered into in the mid 1970s between the Government and a now bankrupt American firm known as N-REN Corporation, to form a company registered as Ken-Ren Chemical and Fertilizers Company Limited. The plan was to save Kenya huge amounts of money then being spent on importing fertilizer.

Ken-Ren was to build a factory at Changamwe, Mombasa to manufacture fertilizer for domestic consumption and export markets. The location, near Kenya's coastal oil refinery was ideal and the use of refinery by-products to manufacture fertiliser made economic sense.

Ken-Ren on advice of N-Ren Corporation entered into several financing and equipment procurement contracts with various Austrian and Belgian banks and suppliers, with the Government of Kenya being the guarantor. The total guarantee provided to Ken-Ren, by the Kenyan Government, was US$42,796 million (at that time about Sh350 million) at an interest rate of 8.5% p.a and other charges. The suppliers of equipment and machinery were Coppee-Lavalin of Belgium and Voest Alpine of Austria.

The American partners turned out to be fraudulent. The fertilizer factory project failed to take off and Ken-Ren was subsequently placed under receivership in September 1978, with the Registrar-General being appointed the official receiver and provisional liquidator.

Although no work was done on the proposed factory, various pieces of equipment worth Sh237 million were delivered at the port of Mombasa by the Austrian firm Voest Alpine.

The rusting equipment can still be seen in Mombasa. Other equipment valued at Sh100 million was ordered and paid for but never shipped. Ultimately, the financiers for the Ken-Ren project instituted two sets of court cases and arbitral proceedings against the Kenyan Government - calling on the guarantee.

In the first case filed in May 1988 by the Ducroire Bank of Belgium against the Kenyan Government, the tribunal sitting in November 2002 awarded the bank an amount of Sh1,720,000,000 (Euro21,181,992), and a further sum of Sh6,790,875 ($87,500) in respect of legal costs.

After further negotiations between the Kenyan Government and the financiers, the debt due was agreed at Sh3,274,934,000 (Euro32,520,319) payable between July 2004 and June 2015. The Government had as at 30 June 2010 paid a sum of Sh2,016,894,395, made up of principal and interest leaving a balance of Sh1,258,039,604 (Euro12,608,034) outstanding.

In the second case filed by BAWAG Bank of Austria on 29 June 1992 before a tribunal, an award of Sh1,330,812,400 (Euro16,635,156) was made in favour of the Austrian bank. However, the government delayed honouring the award, and following several negotiations between it and the bank, a restructuring agreement was reached and signed on 14 November 2004.

According to the agreement, the Government was required to pay a sum of Euro16,635,156 twice a year, on every March 31 and September 30. As at September 30, 2010, the government had paid a sum of Sh1,044,173,755 in respect of principal and interest, leaving a balance of Sh837,312,353.50 (Euro 8,483,929.64) outstanding.

This means By 2015, when Kenya is due to make the last payments due on account of the phantom Ken-Ren Fertiliser Factory project, Kenyan taxpayers will have been gouged over Sh5.1 billion in respect of an original guarantee of only Sh50 million.

The Kenyan taxpayer will have paid 14 times the value of the project and received nothing. Without the factory Kenya continues to import almost 500,000 metric tones of fertilizer annually and the bill amounts to tens of billions of shillings.

Written by Bob Koigi for African Laughter