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UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION
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Tel: (+43-1) 26026-0 · www.unido.org · [email protected]
UNITED NATIONS
INDUSTRIAL DEVELOPKFNT ORGANIZATION

INDICATIVE PROGRAMME FOR THE

INTEGRATED DEVELOPMENT OF THE
FERTILIZER INDUSTRIAL SYSTEM IN
ETHIOPIA

SPECIAL MEASURES AND

ACTIVITIES DIVISION

PROGRAMME DEVELOPMENT
SUPPORT UNIT

VIENNA. JANUARY 1990

 - 2 -

CONTENTS

PREFACE

A. PROGRAMME DESCRIPTION

SUMMARY

1. PROGRAMME CONTEA"T

1.1 Description of the main components and linkages of the fertilizer

industrial system (FER.TIS) in Ethiopia.
1.2 Quantitative description Qf the performance of all important
components of the fertilizer industrial system in Ethiopia.
1.3 Importance of the system in the Ethiopian economy and Government
development objectives related to FERTIS.
1.4 Ongoing development activities related to the FERTIS
1.5 Institutional framework for the development of the syste~

2. PROGRAMME JUSTIFICATION

2.1 Problems to b~ addressed: bottlenecks and constraints hind~ring the

developm~nt of the system towards the Government objectives.
2.2 Analysis of alternative development strategies
2.3 Quantitative analysis of various options for overcoming bottlenecks
and constraints in order to reach FERTIS priority targets.
2.4 Evaluation and selection of preferred strategy
2.5 Expected end-of-project situation

3. INTEGRATED D~\TELOPHENT PROGRAMME

3.1 Programme objectives

3.2 Policy measures
3.3 Technical Assistance Projects
3 .. 4 Investment P~ojects

B. PROJECT DOCUMENTS

1. TECHNICAL ASSISTANCE PROJECT DOCUMENTS

C. ENCLOSURES

1. Map of Ethiopia
2. Location of agricultural surplus producing areas
3. FERTIS Block Diagramme - Ethiopia - Time Base 1989
4. Location of FERTIS related R.H. and planned network of natural gas
5. FERTIS Block Diagramme - Ethiopia - Time Base 2000 (LOW SCENARIO)
6. FERTIS Block Diagramme - Ethiopia - Time Base 2000 and beyond 2000
Programme Maximum (HIGH SCENARIO)
l. Location of main fertilizer complexes in Ethiopia and fertilizer
distribution pattern in High Scenario.

BIBl.IOGRAPllY (main sources)

 - 3 -

PREFACE

Indicative Prog~amme for the Integrated Developme~t of the Fertilizer

lndustri3l System (FERTIS) in Ethiopia covers the second level of the UNIDO
system approach to project identification and formulation.

System approach has been applied to the development of agro-food

industrial system (AFIS) in ~frica in order to accelerate the preparation of
the programme of the 1991)-91 Industrial Development: Decade for Africa (IDDA).

FERTIS is one of the three selected input: sub-systems to AFIS in Africa

(the other two being: agricultural machinery and pesticides).

At the first level of system approach, related to subsectoral typologies,

43 African c~untries have been classified and grouped into 10 clusters of
countries characterized by the similar patterns of development of their
FERTIS. Ethiopia has been located in the country-group 1 embracing: Burkina
Faso, Ethiopia, Mali, Mozambique, Niger, Sudan, Tanzania and Zan.bia.

This study has been carried out by the Programme Development Support Unit:
under the supervision and general guidance of Ms. Teresa Salazar de Buckle,
the Head of PDSU in UNIDO.

Mr. Elizeusz KARP, an UNIDO consultant from Poland, the main author of
Indicative Programme for t~e Integrated Development of FERTIS in Ethiopia, has
been sent on the field mission to this country in the period of
December 12-27, 1989 in order to gather necessary data and to work-out: this
Indicative Programme in co-operation with the Ethiopian counterp~rt
orgar.izations related to the development of FERTIS.

It should be underlined here that the stage of defining objectives and

targets for FERTIS development in Ethiopia is of crucial importance for this
cour.try ~fore any investment: decision is taken-up, in particular because of a
large range of both the demand for fertilizer by 2000 and the N:P:K nutrients
ratio estimated by organisations related to FERTIS development in Ethiopia.

Dynamic development of FERTIS in Ethiopia in the last years, a very high

growth in consumption of fertilizers and trends showing for an important shift
of N:P:K ratio in favour to nitrogen, imposes a very careful investigation of
the system in this country.

It is believed that Indicative Programme for the Integrated Development

oi FERTIS in Ethiopia, together with the attached eight Technical Assistance
Project Proposals, will be helpful in defining future strategies and scenarios
for the development of the fertilizer industry in Ethiopia.
 - 4 -

TIIE INTEGRATED DEVELOPMENT OF THE FERTILIZER INDUSTRIAL SYSTEM IN ETIIIOPIA

A. PROGRAMME DESCRIPTION

SUMMARY

Analysis of the Fertilizer Industrial System (FERTIS) in Ethiopia

indicates for the dynamic growth of fertilizer consumption in the last years,
estimated by the World Bank for 18% per annum.

At present, all consumed fertilizers are imported. Steeply gr~wing

fertilizer demand justifie~ establishment of the fertilizer industry in the
country, in order to substitute imports.

Fertilizer is an agricultural input of critical importance to attain food

self-sufficiency and increase dietary energy supply (DES) per capita, thus
overcoming the deteriorating influence of recurrent droughts, degradation of
soils and overall weaknesses of the Ethiopian agriculture.

Two options are possible in FERTIS development by 2000:

(a) Passive option - Ethiopia would have to continue importing of all

consumed fertilizer, spending valuable foreign exchange for the purchases.

(b) Active option - Ethi?pia would create domestic fertilizer industry,

the back-bone of which would be nitrogen and potash fertilizers based on
already discovered raw materials: natural gas and potash ores.

The second option is strongly recommended in ~his study; the chances are
that from fertilizer importer Ethiopia may become fertilizer exporter, and
food sel~-sufficient country, exporting cash cro~s.

{ Balanced and phase-wise FERTIS development in Ethiopia would allow for

the attainment of total import substitution in nitrogen fertilizers and export
promotion in potash fertilizers. Additionally, import of DAP-TSP-NPK
fertilizers might be partly substituteci by imports of less expensive
intermediates available at the international market: (ammonia), phosphoric
acid and phosphate rock. There are also chances for ammonia import
substitution.

FERTIS development should be supported by intensive surveys and

explorations aimed for new sources of natural gas, phosphate rock, sulphur,
limestone-dolomite and micronutrients.

Three different progra111111es arP. analyzed in this study in comparison with

the present fertilizer industrial system. These are:

(a} FERTIS development according to the Government's programme.

(b} FERT!S development according t,1 FAO recomrnerdation.s (l..OW SCENARIO).

(c) FERTIS development according to recommendation5 of the Institute of

Agricul:ural Research, the Ministry of ARriculturc, the World Bank
and the author of this study (HIGll SCENARIO).
 - 5 -

Although the Government•s programae - realized by the National Chemical

Corporation - aims, in principle, iu proper direction t~ meet the priority
target of food self-sufficiency by 2000, yet some components of this programae
seem to be non-optimal, i~ particular as far as capacities and locations of
the new fertilizer complexes are concerned.

Therefore, both Low and High FERTIS Scenarios have been analyzed in the
study in order to illustrate the influence of major constraints and
bottlenecks for the system.

Guerilla activity, foreign exchanr,e short~ge, weak

infrastructure-transportation network and an undeveloped base of FERTIS raw
materials, have been reckoned to be the most important constraints for the
systems.

The soon ending of the civil war, that drains the budget and deteriorates
the economy, is a sine qua~ condition for the implementation of any serious
strategy of FERTIS development in Ethiopia. Recommended High Scenario has
been built on the assumption that the civil war will cease by 1991.

High Scenario is recommended as it guarantees food self-sufficiency even

in case when the acreage of cultivated land is not expanded, and there are
other constraints unfavourable for the system.

High Scenario assures minimum distribution cost of fertilizers to the

cro~ping areas in thP. Ethiopian Highlands (Shewa, Arsi, Gojam).

The south-west route of the natural gas pipeline, from gas well to Addis
Ababa, is recommended as optimum one for import substitution scenario, with
two nitrogen complexes to be located alongside this route at Yirga Alem and
Mojo.

Specific investment is lower in the High Scenario than t~at in the

Government's program.~e; at the same time, foreign ex~hange savings, food
self-sufficiency ratio and DES are higher in High Scenario. Fertilizer cost
loco farmer's gate is lower in this Scenario and at the same time, maximum
revenues from exports of cash crops (coffee, tea, cotton, oil crops, sugar
cane) can be expected in High Scenario.

High Scenario has, however, one substantial drawback: the progra1i11De is

complex and large, hence its implementation by 2000 would only then be
realistic if the civil war is over by 1991. If this were not the case, the
programme would have to be implemented through phase-wise planning and would
have to be stretched beyond 2000.

Eight Technical Assistance project proposals are analyzed in this study

in order to answer the most important questions on fertilizer demand, optimum
N:P ratio, and others - before final d• .isions on FERTIS development are taken
up. TA project proposals aim also at the strengthening national capabilities
in procurement and trading fertilizers, as well as in planning investment, and
operation and maintenance of fertilizer plants.

A clear definition of the long-term objectives and strategics for the

fertilizer industry is believed to be of greatest importance for the smooth
creation of the domc~tic fertilizer industry, its high efficiency and reliable
operation.
 - 6 -

In order to reach full benefits from the Ethiopian a~riculture, FERTIS

development should be accompanied by the package of other agricultural
inputs: improved seeds, pesticides, irrigation and mechanization, it is
believed, however, that even with proper development of the Fertilizer
Industrial System alone it would be much easier to nourish future generations
and to improve greatly the level of life of the whole nation.
 - 7 -

1. PROGRAMME CONTEXT

1.1 Description of the main components and linkages of the fertilizer

industrial system (FERTIS) in Ethiopia

1.1.l General background

The following are the main features of the country that may have impact
on the Fertilizer Industrial System in Ethiopia:

The People's Democratic Republic of Ethiopia is a sea-side located

country, with the total area close to 1.2 million square kilometers, of
that only about 7 million ha is estimated to be under cultivation.

Agriculture is a mainstay of the economy, contributing about 501 to GDP

(US$110 per capita in 1987) and providing a livelihood for up to 901 of
the population. The chief cash crop is coffee, grown on the plateaux in
the south-west. Cotton and sugar are the other cash crops. The main
food crops are maize, sorghum, wheat, barley, millet and teff. Drought,
guerilla activity, soil erosion and transport problems have led to sharp
drop in agricultural production, and killed much of the country'~
livestock. Although there are signs of improvement, reliance on food aid
is expected to continue until 1990.

The central highlands receive enough rainfall, the climate is tropical

there, but moderated by altitude, with one rainy season and one dry
season. On the plateaux there is also a short rainy season in winter
apart from the main season (monsoon season) which allows for season c~op
production (double cropping area). Kuch of the lowlands, including
south-east regions and the rift valley, have a Sahelian climate (very dry
with short wet season for approximately three months); very high
temperatures). Desert climate prevails at the Red Sea coast and in the
eastern part of the Ogaden province (very dry with occasional flash
storms and very hot summers).

The mid-1986 population estimated at 43.5 million inhabitants, with a

life expectancy of 46 years and popula:..ion growth estimat('d at 2.9%
(1986-2000) is projected at 65 million inhabitants by the year 2000.

Average figures for 1984-86 indicated for cereals self-sufficiency ratio

of 83%, and as low as 1,400 kcal-cap-day daily per capita calorie intake
(2,097 kcal for sub-saharan Africa in 1986). FAO estimated that 1.3
million tonnes of food aid would be required for up to 6.5 million hungry
or starving people in 1987. Since the time of serious famine in 1984-85,
Ethiopia has been pre-occupied by two pressing problems - a recurrence of
drought and f~mine, and the continuing war in Eritrea and Tigre.

Ethiopia, with its per capita GNP in 1986 of US$110, is one of the
poorest countLies in the world. With its external debt of US$2.2 billion
and net foreign trade balance - US$650 million, the country is almost
totally dependent on agricultural exports, accounting for over· 90% of
forei ~,.1 exchange earnings.

Priority in the budget i~ given to defence, and only then to agriculture,

industry, mini.ng and transport. The budget's main emphasi:; on defence
 - 8 -

spending highlights a major government dilemma: in order to realize its

economic potential, Ethiopia needs to end its financially draining
conflicts in Eritrea and Tigre (there is ai~o sporadic fighting in the
Ogaden and in the south).

Port in Assab plays a key role in the development of the fertilizer

industrial system in Ethiopia. Through this port and associated road
network all imported fertilizers (about 162,000 tonnes in 1989) are
transported to the centrally located fertilizer storages in Addis Ababa
and Nazareth. The only rail line in Ethiopia connects Addis Ababa with
tha foreign port Djibouti, and is therefore of a lesser importance to
FERTIS development. See attached map for reference, illustrating main
road network, rail line and connections to ports.

The mining subsector, of vital importance for FERTIS development,

contribute ma~ginally to GDP. At present activity is limited to small
scale gold m1n1ng. Untapped are reserves of potash, copper, zinc and
iron ore. Not explored yet phosphate and sulphur (pyrites) deposits.

The energy subsector is stronger, as it is characterized by considerable

hydro-electric ~apacity (1,200 HW at present, with dynamic growth); crude
oil is delivered from imports to refinery in Assab (capacity close to 1
million tonnes per annum) where it is processed to petroleum products;
there are prospects of locating petroleum in the Ogaden region (Soviet
and Western companies have started prospecting), at the same time oil
exploration is slowly progressing in the south-west of the country. Of a
very great importance for FERTIS development in Ethiopia are reserves of
natural gas discovered ~n the Ogaden region at Calub. The reserves are
estimated at about 25 billion cubic meters and are being developed with
the World Bank support (small scale projects). Wood has always been a
traditional souree of energy, but it is hoped that increased availability
of electricity wLll reduce usage of fuelwood, as many forests have now
become severely depleted.

Ethiopia, one of Africa's largest and potentially wealthiest countries is

only to some extent dependent on foreign aid, grants and loans. Western
governments have been critical of the country's rural development
policies, which include collectivisation of agriculture and resettlements
of "refugees". Some Western countries still refuse to give long-term
development aid, preferring to channel their efforts into short-term
emergency relief. Longer-term assistance is left to multilateral bodies
like the World Bank and the European Investment Bank. The World Bank
lends more than US$100 million for forestry, livestock and drainage
schemes during 1987. Upgrading of Assab port is under consideration by
the World Bank, as there are various road improvements schemes. European
Investment Bank committed US$27.5 million to soil conservation. There
are no grants in fertilizers which ar~ imported in 100% and paid for in
foreign exchange.

Ethiopia is a member of the Preferential Trade Ar~a of Eastern and

Southern Africa. Of the greatest importance is also Ethiopia's
membership in OAU, IMF, World Bank, African Ocv~lopment Bank, Economic
Commission for Africa and United Nations.
 - 9 -

One of the most important assumptions in this study is that regional

conflicts in Ethiopia will soon be over. This is a pre-conditi~n for the
Ethiopian economy to increase significantly its performance, and sine qua non
condition for any serious investment programme ~o become successful.

The country cannot expect much assistance from outside and has to rely on
its own, undoubtedly high, but yet not developed potential. B.•ing at a
crossroads now, Ethiopia has to either end its regional conflicts and help
release its economic potential, or condemn it to warfare and poverty for the
rest of the century.

Agriculture is a locomotive for the Ethiopian economy, and FERTIS is one

of the most important sub-systems for agriculture to increase its output,
supplying domestic and export markets. FERTIS may directly contribute to
foreign earnings through exports of potash, and indirectly through an increase
of agricultural exports (coffee) due to more intensive application of nitrogen
fertilizers (urea).

Ethiopia's strong raw material endowment in nitrogen compo~ent

(natural gas) and potash component (potash ores) is the foundation on which
FERTIS should be developed. That is why Indicative Programme for the
Integrated Development of FERTIS in Ethiopia aims at thi3 very direction.

1.1.2 The Fertilizer Sub-sector in Ethiopia

Ethiopia does not produce fertilizers, and so far has been fully
dependent on their imports.

Application pattern of fertilizer in Ethiopia is rather simple, with only

two types of fertilizer currently used: Diammonium Phosphate (OAP) and
U~ea (U).

The Agricultural In~uts Supply Corporation (AISCO), the only organisation

in Ethiopia responsible for the procurement and distribution of fertilizers,
purchased in 1989 altogether 162,000 MT of urea (20% of all fertilizer
imports). Additionally, AISCO purchased about 8,000 MT of NPK fertilizers for
the Ministry of Coffee and Tea Development.

The total amount of fertilizer nur.rients purchased in 1989 amounted to

about 100,000 MT of NP, with the resulting N:P ratio of about 1:1.5. Potash
component (K) is of much lesser importance in Ethiopia at the present time, it
has not been widely used yet, all the more so that domestic soils do not show
generally potash deficiency The consumption of NP nutrients has considerably
increased in Ethiopia since 1961, what can be seen below:

1961-66 1971 1973 1976 1979 1981 1985 1983 198~

NP in terms of 000 MT
of N+P205 1 7 19 27 37 46 66 79 98

The N:P nutrients ratio fluctuated in the ranRe of 1:1.1 up to 1:2.5,

with the nutrients ratio of about 1:1.5 prevailine in the last years. In
principle, potash was not imported.
 - 10 -

Demand for fertilizers. in particular in the last years (thanks to

extension services and programmes for farmers). is steeply gLowing, and it is
estimated that the demand is almost two times higher than the present
consumption.

The fertilizer demand, derived from applications to AISCO for 1990, shows
that as much as 290,000 HT of fertilizers could be consumed, had it not been
for the constraints of foreign exchange availability for imports of
fertilizers.

DAP is a main source of phosphate, which is applied for, and urea the
main source of nitrogen. This is understandable, considering that these
fertilizers are the most concentrated ones, what makes that the unit cost of
nutrients delivered to farmers' gate~ is kept at a minimum level.

Assuming similar consumption pattern of fertilizers as in 1989 (i.e.: 80%

of DAP and 20% of urea, with the resulting N:P ratio of about 1:1.5), the
demand in EthioFia for fertilizer nutrients in 1990 would be as high as about
175,000 HT of NP.

All imported fertilizers are bagged and are brought to Ethiopia through
the port of Assab, from where they are transported by trucks to the main
fertilizer stores in Nazareth and Addis Ababa, in order to be distributed to
fertilizer consuming regions.

Three regions, namely Shewa, Arssi and Gojam, contributing some 45% of
the national food production, account for about 75% of the total fertilizer
consumption in Ethiopia.

There are about 750 Selling Distribution Centers in Ethiopia, through

intermediary of which fertilizers are delivered to uver 4,000 Service
Co-operatives, to reach finally peasants' farms, accounting for over 70% of
the total fertilizer used in Ethiopia.

Bulk of all fertilizer is consumed in Ethiopian Central Highlands, wher~

the surplus of agricultural production is generated. The Highlands are
surrounded by the Lowlands with insufficient rainfall and mostly pasture
soils, where Nomadic societies are using practically no fertilizer at all.

Of the total estimated potential of 80 million ha of agricultural land,

Ethiopia's arable land potential (cropland) is estimated for about 18 million
ha, however, only about 7 million ha is unoer cultivation at the pre~ent time,
with the resulting fertilization rate of 14 kg of NPK per ha of cultivatea
area in 1989 (6 kg NPK per ha of arable land).

For better illustration of the fertilizer industrial sub-system in

Ethiopia, see attached FERTIS block diagrams and maps, presenting a lot of
additional information related to the sub-system.

I. 1. 3 Fertis main components and linkaBes in Ethiopia

According to results of subsectoral typology, analyzed ~t the fir~t lrvrl

of UNJDO system approach related to FERTJS, Ethiopia was included in
country-~roup 1 - FERTILIZER IMPORT SUBSTITUTING COUNTRIES.
 - 11 -

Though Ethiopia does not produce fertilizers yet, it may, however, soon
change its position and from an importer is likely to become a re~_atively
strong producer of fertilizers, substituting import. There are also real
chances for Ethiopia to become an exporter of fertilizers, in particular
potassium chloride and sulphate.

Future position of ithiopia's fertilizer industry will depend first of

all on the possibilities of how soon the regional conflicts in Eritrea and
Tigre be over.

As can be seen from the description of the pattern of de,elopment across

FERTIS components, Ethiopia has good prospects for the development of its
domestic fertilizer industry, namely:

(a) Natural resources

The country endowed with "N" and "K" related raw materials: natural gas
and potash ores. A natural gas reserve estimated at about 25 billion cubic
meters has been discovered and is being developed in the 0gaden region of
Ethiopia (CALUB). This area has now been res~rved by the governmenL and Lhe
USSR is undertaking further exploration.

A pre-feasibility study funded by the World Bank had earlier been carried
out by the Gas Development Corporation of USA. This company have identified a
number of small scale gas utilization projects (domestic and industrial fuel,
vehicular fuel, electricity generation) and these projects have been started
with the World Bank funding. One of the small scale projects identified but
not included in the above funding is the establishment of a mini-fertilizer
nitrogen plant, to be built at GODE which is about 100 kms away from CALUB. A
mini-fertilizer p]ant would need up to 50 million cubic meters of gas per
year. The gov~rnment is also looking, however, to a large scale gas
utilization scheme in which as ~uch as 1.2 billion cubic meters of gas would
be sent either through I:ast-North or South-West natural gas pipeline from
Calub to Addis Ababa (for reference see attachments).

In large scale gas utilization scheme, a world-scale fertilizer complex

of ammonia and urea plants is considered in METAHARA. Such a complex would
use up to 0.5 billion cubic meters of gas per year, and natural gas reserves
would be sufficient to feed the complex for about 25 years. With other
consumers included in the large scale scheme, the gas reserve would suffice
only for 20 years of operation.

Th~ Government has offered 25 oil-gas blocks to Western companies in the

Red Sea, in the Ugaden and on the border with Sudan. However, only one block,
on the Red Sea, has been taken up, by Chevron. It is estimated that the
probability of discovering new deposits of natural gas on the Red Sea coast is
high, in particular when several oil-gas blocks are taken up, in peaceful
conditions, by specialised co1apanies. Natural gas discovery on the Red Sea
coast would have great significance for designing future strater,y of FF.RTIS
development in Ethiopia, in particular, as far as the planned fert.ilizer
industry development in ASSAB is concerned.

Potash deposits arc located in the Danakil Depression, somr 90 km from

the port of Mersa Fatma on the Red Sea Coast in NorthPrn Ethiopia. The
deposits, discovered after the turn of the century, havr hrrn workrd and
 - 12 -

explored on and off since then. In 1981, an Ethiopia-Libya joint venture

(ELKICO) acquired the deposit and initiated a prefeasibility review. Initial
Phase lA report was issued in 1986. Beczuse of the military struggle with
Tigre rebel forces, the specialists of Entreprise Kiniere et Chimique of
France still await the permission of the Ethiopian Government to visit the
~.rea, co complete Phase lB and Phase 2 reports. A review of market prospects
for potash 11>·as also completed by ECA in 1982.

The potash deposit has a number of attractive characteristics; the

deposits are cl~se to surface, permitting cheaper open pit mining and (or)
solution mining. In addition to sylvite (containing an average of 33% KCl)
and carnallite, kainite could also be mined to produce potassium sulphate.
Estimated potash reserves a range from 10 to 18 million tons of recoverablE.
KCl product. The deposit is close to the coast and a reasonable harbour, and
advantageously located for markets in Asia and Africa, to which the projected
production of 1.5 million KTPY of KCl could be directed from the potash
complex.

However, the World Bank indicates for unpromising market prospects for
potash (overall deo:and and prices are depressed), what makes th~t at the
present prices the economics of the project seem in doubt. The World Bank
points out for the coaplexity of the deposits which would need quite an
extensive programme of the technical work, as well as technicall:· and
financially qualified partner. Also, penetration of the Asian market, which
consumes about 2.8 million MTPY of KCl, would be one of majo~ tasks. The
project would need to offer a substantial price advantage as well as to
establish credentials as a reliable supplier.

The two remaining raw :naterials of great importance to the FERTIS

development in Ethiopia: sulphur and phosphate are known to occur in several
locations and in different geolocial forlliations, there is a need, however, for
further exploration. Sulphur and pyrite occurences are located in Eritrea,
Tigre, Harar and Shoa provinces. RE..;·1lts obtained so far in the exploration
programme b~gun in 1985 by a joint EIGS-UNIDO team, proved the existence of
phosphate bearing rock in the Ogaden and apatite associated with magnetite and
ilmenite in the Wellega and Bale regions.

(b) Processing to intermediary products

Ammonia, sulphuric acid and phosphoric acid have not yet been developed in
Ethiopia. Although small capacity sulphuric acid plQnt is being built at
present in Nazareth (the plant is based on imported brimstone and will feed
the ceramic industry - kaoline processing), the best prospects for development
is seen for ammonia pl~nts based on domestic resources o[ natural gas. Once
studied amm0nia plants based on hydroelectricity (water electrolysis to yield
hydrogen), in ti.~ light of electricity prices in Ethiopia in the range of
10-45 US Cents per kilowatt-hour, cannot compete wlth natural gas based
ammonia plant~.

It is believed that to the end of the century, processing to ammonia will

be substantially developed (plans for the development of a mini-fertilizer
ammonia plant at Gode and world-scale ammonia plant at. Metaharn). The·
sulphuric industry may be developed on the basis of imported hrimr.tone
(elemental sulphur) by the year 2000 to some extent. The lowest pror.pcct~ arr
for development of the domestic phosphoric acid industry (planned import~ of
phosphori.c acid to Assab).
 - 13 -

(c) Processing of NPK fer~ilizers

The processing of NPK fertilizers has not been developed in Ethiopia

until ~ow. Several alternat~ve routes were looked into the past, but the lack
of the required domestic materials, weak infrastructure, and forPign
constraints have hindered action-oriented decisions in the domestic fertilizer
industry.

DAP (TSP), Urea and HOP (SOP) are the fertilizers that are given priority
in plans of FERTIS development in Ethiopia, as follows:

-versatile OAP (TSP) plant in Assab

-urea plants at Gode and Hetahara
-MOP (SOP) plants at Dallol (potash f~rtilizer complex)

(d) Other operations (Bulk-Blending, C.v.!pound Granulation, Ground

Phosphate rock Plants)

These operations have been the subject of intensive studies in the past,
nowadays, however, these ideas have been totally abandoned in favour of
syntheses of fertilizer products.

Packaging industry development is considered in order to decrease foreign

exchange burden through imports of bulk fertilizers rather than bagged.

(e) Enerey self-sufficiency and energy consumption per capita

These are the measure of industrial inputs and services in the FERTIS
develo~ment. With the total energy self-sufficiency of about 9% in 1986 (all
crude oil is imported to Assab refinery), and, thanks to quite well developed
potential of hydroelectricity, with self-sufficiency in electrical energy of
100%, Ethiopia can be considered as a country characterized by a low level of
development of energy sector.

Energy consumption per capita - 21 kg of oil equivalent in 1986 - is one

of the lowest in the world.

And yet, in spite of these indicators, Ethiopia has some prospects for
im~rovement in energy ~ector, in particular in further hydro-electricity
development, utilization of natural gas and geothermal energy. There are also
prospects for oil discovery in Ethiopia, provided that intensive exploration
is continued in peaceful conditions. The development of energy sector is an
imperative to stop the process of deforestation (fuelwood gathe~ing), which,
in turn, is the cause of the severe desertification.

(f) Storage, transport and distribution

These three factors are quantified in FERTIS by two variables, total area
of the country and infrastructure and transport network. Ethiopia can be
characterized in this component as the country having considerable constraints
for balanced FERTIS development.

Large area of the country, mountainous sculpture of the landscape

crosscut with Rift Valley, limited access to the Red Sea coast through port of
Assab with the only rail-line linking Addis Ababa with port of Djibouti -
these are the most important features of EthiopiA in FERTIS component 6.
 - 14 -

Also because of that, the fertilizer farm-gate price is higher of about

50% of the fertilizer price CIF port of Assab. It is assumed, in AISCO
calculations, that the total cost of handling 1 tonne of fertilizer to average
farmer's gate is as high as 288 Birr, which is equal to US$140 per tonne. Of
that, US$80 per tonne is spent for fertilizer handling in port of Assab and
its transport to central warehouses in Nazareth and Addis Ababa by road.

(g) Consumption of fertilizers

This indicates for quite a considerable market in Ethiopia, about 100,00G

HTPY of pure nutrients in 198), as well as for a dynamic consumption growth of
over 250% in the last decade. Further quick increase of consumption is
expected by the end of the century, to as much as about 400,000 HTPV of NPK,
which is considered to be a minimum consumption level, heavily constrained by
the availability of foreign exchange for imports of fertilizers.

As already discussed, N:P nutrients ratio of 1:1.5 is expected to shift

in the future more towards nitrogen, and N:P ratio limit value of 1:0.5 can be
expected by the year 2000.

The size of the present market and fertilizer consumption growth in the
last years indicate for the necessity of the creation of the domestic
fertilizer industry in Ethiopia.

With low N:K ratio (below 1:0.1), and with substantial reserves of potash
ores, there are good prospects for developing export-oriented production of
pctassic fertilizers.

(h) Demand for fertilizers in the year 2000

The demand for fertilizers is expected in the range of: m1n1mum 400,000
MTPY of NPK up to maximum 650,000 MTPY of NPK. These LOW and HIGH fertilizer
demand scenarios 2000 should be considered to be deµendent on cumulative
constraints that may affect future fertilizer consumption (low scenario with,
and high scenario without constraints).

The fertilizer demand in Ethiopia, assumed in this study, is much higher

than the demand 2000 forecasted in FAO Scenario A - 1980, UNIDO Scenario
C - 1983 and fertilizer demand 2000 assumed in FAO estimations in 1988.

Low fertiiizer demand scenario corresr-onds broadly with the demand

forecast adopted in FAO study "Ethiopian Agriculture - Crop Yield Response and
Fertilizer Policies", dated July 1989.

As there is no production of fertilizers in Ethiopia at present, the

assumed demand 2000 is equal to th~ NPK gap 2000, as follows:

Low Scenario High $cenario

Nitrogen (N) 190,000 MTPY 418,000 ~PY

Phosphate (P205) 190,000 MTPY 209,000 MTPY

Potash (K20) 20,000 MTPY 23,000 MTPY

Nutrients NPK ~00,000 MTPY 650,000 MTPY

 - 15 -

If the NPK gap is to be covered, a lot of capacities would be needed in

the domestic fertilizer industry in Ethiopia by the year 2000.

The present consumption of fertilizers (98,000 KT of NPK in 1989) covers

the demand 2000 in low scenario in 25% and in high scenario in 15%, this being
an indication of how big increase of fertilizer delivered to agriculture would
be needed.

When nutriend demand for 1990 (which is 175,000 HT of NPK) is compared

with the demand 2000, one can see that forecasted growth in fertilizer demand
in the next decade is as high as 230% in low scenario and 370% in high
scenario. This can only be achieved, if civil war in Ethiopia is soon over,
and the highest priority is given to the development of agricultural sector,
including FERTIS development

(i) Fertilizer application

This is measured by consumption of NPK per hectare of arable land with

permanent crops.

Therefore, fertilization rates assumed in Ethiopia by the year 2000,

should be compared with analogous indicators related to the World and Africa,
:>3 follows:

NPK demand 2000 NPK demand 2000

per ha of AL + PC per capita

World 145 kg 36 kg

Africa 38 kg 9 kg

Ethiopia (Low scenario) 22 kg 6 kg

Ethiopia (High scenario) 36 kg 10 kg

Arable land potential in Ethiopia is estimated for 18 million ha in 2000;

share of arable land in agricultural area (about 80 million ha in 2000) is
equal to 22%. Potential arable land p~r capita in the year 2000 is estimated
for 0.28 ha, which shows that the pressure on the agricultural land in
Ethiopia will grow substantially by the year 2000. This is an enhancement for
the development of the fertilizer industrial system in Ethiopia, all the more
so that the assumption on the land resources are rather optimistic ones.
Rapid deforestation, erosion and desertification of arable land, threatens the
food production base of future population in Ethiopia, estimated to grow up to
65 million inhabitants by the year 2000.

It is worth noting that only about 8.5 million ha of arable land is

expected to be cultivated in 2000. Accordingly, f~rtilization rates measured
~er ha of cultivated area, are expected to be rather high when compared to
1989:

1989 2000 2000

(Low scenario) (high scenario)

Fertilization rate per ha of

cultivated Area (kg NPK) 76
 - 16 -

It is believed that, with the limited land resources and quite a

substantial population by the year 2000, there is no uther choice for Ethiopia
but to intensify agricultural production through much higher use of different
inpu~s. first of all fertilizers.

(j) Fertilizer impact on agricultural production

This is believed to be the highest of all the inp~ts ~onsidered (seeds,

pesticides, irrigation, mechanization, fertilizers) for application in
Ethiopia. Improving crop yields through fertilizer use is best characterized
by results of FAO Fertilizer Programme on maize in Ethiopia in the years
1967-78. Country average yields of maize were at the level of 1,050 kg per ha
of cultiv~ted area, yields achieved with fertilizer used under coi.trol were at
the level of 2,170 kg of maize per ha of cultivated area, while best treatment
results were as high as 3,280 kg of maize per ha of cultivated area.

FP.rtilizer response coefficient based on fertilizer demonstrations in

Ethiopia showed that as much as 16.3 kg of sorghum, 15.l kg of maize and 7.3
kg of wheat could be yielded per one kilogram of NPK nutrients applied in best
treatments.

With projected population of 65 million inhabitants, and GDP per capita

much lower than in the majority of Sub-Saharan African countries, Ethiopia
will be able to sup~ly only limited inputs from the national economy to the
agricultur."ll sector. It will be, however, i111possible to nourish the nation
without substantially increased conswr.ption of fertilizers. According to FAO
Study "Ethiopian Agriculture - Crop Yield Res~onse and Fertilizer Policies" of
July 1989 - No Acreage Expansion Sceaario (Variant A} - fertilizer consumption
increase with proper related policies is a single factor that may contribute
to subs~antial increase cf food self-sufficiency and per capita dietary energy
supply in Etniopia.

Cereals self-sufficiency ratio .11ay be raised from 74% up to 94% and DES
may be increased from 1,618 up to 2 uOl kcal-cap-day if consumption of
fertilizers is increased from 188,000 MT of NPK up to 333,000 MT of NPK in the
year 20JO.

(k} The in~entive to use fertilizers by farmers

This incentive, expressed as a crop price versus fertilizer price index,

is of great importance in Ethiopia in order to enhance increased use of
fertilizer. It is estimated, in the above mentioned FAO Study, that
fertilizer price subsidy of 50% would contribute alone to fertilizer
consumption incroase by 20%.

Price and fertilizer subsidy policies can play an important role to

stimulate agricultural production in Ethiopia in the initial stage.

The percentage of farmers adopting fertilizer use is likely to increase

from abo11t 10-15% to some 30% hy the year 2000. Specific policy measures
including improved extension services, demonstration tridls, timely and
efficient distribution .:>f fertilizers together with suhsidics and crc,di t wi 11
be essential to ensure higher rate of fertilizer adoption hy th~ year 7000.
 - 17 -

The average ratio of cereal to fertilizer nutrient price has been

fluctuating in Ethiopia in the range of 0.38-0.18, showing slow decline in the
years of 1966-67 to 1986-87. The decline in the ratio from about 0.3 to about
0.24 has probably also curtailed the use of fertilizers.

(1) Government priority in FERTIS development in Ethiopia indicates the

following:

Though fertilizer is a very ~ostly input, and Ethiopia faces problems

with foreign exchar-ge availability, a year by year increasing consumption
of fertilizers illustrates th~ importance of this input to the
government, allocating financial resources for imports of fertilizers.

Government strategy is clearly set for Import Substitution, the evidence

of this being plans of the development of the national fertilizer
industry (projects in Assab, Gode and Metahara).

It is felt that the strategy of Fertilizer Import Substitution are given

government priority over Export Promotion strategy (plans of the
establishment of nitrogen and phosphate fertilizer facilities in A~sab,
Gode, Hetahara versus export-oriented potash complex in Dallol).

Export of NPK fertili~ers or nitrogen or phosphate related raw materials

cannot be taken into account in the foreseeable future, since fertilizer
industry and fertilizer raw material base are not yet developed in
Ethiopia. The best chances are seen in export of potash from Ethiopia.

1.2 Quantitative description of the performance of all important components

of the fertilizer industrial system in Ethiopia

The general description of FERTIS in Ethiopia presented above, should be

complemented with short quantitative description of the system. This can best
be done through presen~ing FERTIS Block Diagramme ETHIOPIA - time base 1989.

The present Fertilizer Industrial System in Ethiopia is rather simple, as

all fertilizers are imported.

Altogether, about 170,000 HT of fertilizer products (DAP +Urea+ NPK

fertilizer), the equivalent of about 100,000 MT of NPK, were imported in 1989
for the total of ~bout VS$44 million CIF port of Assab.

Procuring and distribution of fertilizer is the task of the Agricultural

Inputs Supply Corporation (AISCO) which is operating under the Ministry of
Agriculture (HOA) and has a monopoly position of this kind of activity.
Procurement is done by international bidding, as well as from EEC (fertilizer
quotas and pricing level set by EEC). Of the two most frequently used types
of fertilizers purchased in 1989, CIF price for DAP purchased through
international competition from Jordan amounted to 543 Birr (US$186). In
contrast, urea purchased from EEC cost 500 Birr (US$242) per 1 MT of bagged
product.

The farm-gate price of thi.s latter product rose from 500 Birr CIF port of
Assab, up to 788 ~irr per 1 HT of bagged "rea loco farmer, and the breakdown
 - 18 -

of price increase is as follows:

(a) CIF port of Assab per 1 KT of bagged urea 500 Birr

(b) Product insurance (Assab-Nazareth of Addis Ababa) 3 Birr
(c) B~nk charge (Letter of Credit) 21 Birr
(d) Port dues l Birr
(e) Transport and handling in the port (clearing charge)
Maritime Transport Service Corp. 57 Birr
(f) Transport from Assab to warehouse in Nazareth or
Addis Ababa (transit to warehouse) 108 Birr
(g) Unloading in warehouse 3 Birr
(h) Loading on trucks 3 Birr
(i) Spoilage and losses 3 Birr

(j) Sub-total 690 Birr

(k) Overhead and general expenses (Bank, insurance) 30 Birr

(1) AISCO overhead 18 Birr
(m) Contingency 15 Birr

(n) Selling price before turnover tax 753 Birr

(o) Turnover tax (2%) 15 Birr

(p) Selling price to Service Co-operative 768 Birr

(q) Farmer-gate price 788 Birr

Thus, the whole chain of port handling-transport-storage operations with

due costs, causes price built-up per l KT of any type of bagged fertilizer of
abou~ 788 - 500 - 288 Birr, equivalent to about US$140. The total value of
fertilizers purchased in 1989 (CIF Assab) has been estimated for 91 million
Birr, while the total value of fertilizer loco farmers' gate for about 137
million Birr.

There are no fertilizer stores, nor bagging facilities in the port of

Assab. Ships calling to the port are unloaded by general cargo port
facilities that handle as well bagged fertilizers.

There are plans of construction of a fertilizer store in port of Assab.

The store is to have the capacity of 25,000 KT of bagged fertilizers and is to
be built with EEC assistance.

At the same time, National Chemical Corporation (NCC) plans to build a

fertilizer store adjacent to its DAP (TSP) versatile fertilizer plant in
Assab; Al~CO plans to built fertilizer bagging facilities in Assab - (for
reference see attached Technical Assistance Proposals).

A fl~ct of trucks delivers fertilizers to central stores in Nazareth

(capacity of 8,000 HT of bagged product) and in Addis Ababa (capacity of
12,000 HT of bagged product). AISGO is using government transport fleet of
Ethiopia Freight Transport Corporation ~n order to bring fer~ilizers from
Assab to central stores, as well as to distribute fertilizers to other
regions. ThrouRh planned purchase of 50 truck-trailers, AISCO aims at
 - 19 -

covering of up to 50% of fertilizers distributed from central stores ;n the

country. With the World Bank funds, AISCO will also buy 3 mobile fertilizer
bagging units - (see Technical Assistance proposal for reference).

AISCO is totally responsible for the supply and distribution of inputs

throughout the country. This entails AISCO, as a main wholesale supplier, to
organize and manage the imports, storage and distribution of fertilizers and
other inpts to the extensive network of ll!arketing centers for retail sales
through Service Cooperatives to Peasant Associations and Cooperatives - (see
Technical Assistance proposal for AISCO training package for reference). An
efficient programme of procurement and timely distribution throughout the
country is critical to meet the Ten-Year P~r·spective Plan, according to which
fertilizer consumption should increase frc;: 2 7 ,000 MT nutrients in 1983-84 to
about 230,000 KT nutrients in 1993-94, an cbout eight-fold increase for a
decade. In practice, the above mentioned _.re all industrial inputs and
services connected with the fertilizer industrial system in Ethiopia. Since
there is no production of straight fertilizers, nor complex fertilizers,
neither bulk blending operations i• Ethiopia at present, the next FERTIS
component to be analyzed is FERTILIZER SUPPLY.

In 1989 only primary nutrients: NPK were supplied to agriculture, no

secondary nutrients or micro-nutrients are known to be used in 1989. As
already mentioned, out of about 100,000 KT nutrients delivered, nitrogen
occupied some 29%, phosphate 60% and potash about 1%. The nutrients ratio,
resulting f~om all the fertilizers imported in 1989, was around
N:P:K - 1:1.54:0.03. Priority in supplies was given to DAP (75%), Urea (20%),
followed by NPK (1:1:1} fertilizers (sharing about 5% of supplies). AISCO was
the only purchaser and supplier of fertilizers in 1989.

There are sevaral projects connected with import substitution of

fertilizers that are planned by government - (for reference see Technical
Assistance project proposals). These projects are related to primary
nutrients (NPK), secondary nutrients (S, Ca, Hg}, and to a Jesser extent to
micro-nutrients.

Total fertilizers imported are DISTRIBUTED (the next FERTIS component) by

AISCO through the two channels: cooperative and state controlled. There is no
private distribution channel developed in Ethiopia. The lion share of all the
fertilizers distributed ioes through the.cooperative channel, connected with
peasant sector.

Parastatal channel is connected with the Ministry of Stat~ Farm

Development (large scale farms), Ministry of Coffee and Tea Development (cash
crop producers), Government Resettlement Programme and other NGO's buying
fertilizers from AISCO.

Over 90% of imported fertilizers are distributed in the Surplus Producing

Areas (see attached map for reference}, located mostly at Highlands, the
remaining being shipped to Potential Surplus Producing Areas. Deficit
Producing Areas. Deficit Producing Areas are in principle not supplied with
fertilizers. Fertilizers are distributed from AISCO's ccnt::'.'al stores in
Nazareth and in Addis Ahaba to about 750 Selling Distribution Centers in
Ethiopia manageo by AISCO, from where fertilizers arP. sent to about 4,000
Service Cooperatives connected with some 20,000 Peasant Association5. From
Service Cooperatives, that have their local fertilizer stores, fertiliz~r;. ar~
 - 20 -

delivered t:o soae 7 aillion of peasant: faras. A farmer usually buys from
1 t:o 8 (50 kg) bags of fert:ilizer product:.

The whole process of fert:ilizer supply and dist:ribut:ion. from request: for
fert:ilizer to it:s applicat:ion into soil. last:s approximat:ely one year.

About 7-8% of fert:ilizer is damaged in t:he whole chain of

supply-dist:ribut:ion. t:his being of great concern to AISCO - (see Technical
Assistance project proposal connect:ed wit:h fertilizer mobile packing unit).

COHSUHPTION of fert:ilizers in Ethiopia is connected chiefly with small

scale farms in peasant sect:or, consuming over 751 of fertilizers.

Over 751 of fert:ilizers is consumed in 3 regions (Shewa, Arsi, Gojam).

wh~re some 15-201 of farmers use fertilizers. The rate of fertilizers
adoption in the other 11 regions of Et:hiopia is very low.

The largest: shar~ of fert:ilizer, over 801, goes to cereal crops, and
within t:hat group about half is applied to t:eff, followed by wheat, barley,
maize and other crops.

l..2rge scale farms (about 5,000 ha versus 2 ha of peasa~t farm) consumed

in 1989 about 15% of fert:ilizer, mostly DAP, followed by urea. Large farms
under Ministry of St:ate Farm Development share the cash crops market: with the
producers of coffee and tea under Ministry of Coffee and Tea Development which
uses about 51 of fertilizer consumed in Et:hiopia (mostly NPK fertilizers and
urea, followed by DAP).

Around 51 of fertilizer consumption is shared by other organizations,

including reset:t:lement programmes.

DS.'iAND for fertilizers in Ethiopia at present is almost 2 times higher

than consumption, and is controlled by foreign exchange availability for
imports of fertilizer (t:here is no aid or grants of fertilizer in Ethiopia).
Pricing policies (fert:ilizer prices, crop-fertilizer price ratio, subsidy
level), having direct impact for farming efficiency also influence fertilizer
demand. Fertilizer prices are relatively hi~h. crop-fertilizer price ratio
low, fertilizers are being subsidized in 71 and only for peasant sector.

The highest demand can be noted for DAP end urea, but also NPK's are
looked for (mostly coffee farms). Sugar grow·~rs apply on alkaline soils
a111111onium sulphate (AS). Also nitrophosphates (NP) are being tested for
coffee. Cotton growers us~ urea. Urea is als' used for coffee as a top
dressing fertilizer, but can be used in acidic soils only to a limited extent
if soils are not: limes (limest:one, dolomite).

It is expected that the application of DAP will rise in future, but along
with the increased residual phosphate ~ontent of t:he soils, being a
consequence of continuous phosphate fertilization, importance of DAP will
lessen, mostly in favour of urea, the application rate of which is exper.ted to
grow constantly by 2000.

Demand for different fertilizer types, clearly indicates the f.)llowing:

In thE' r,roup of primary nutrients N, P, K there is a shift trend from

 - 21 -

phosphate 11<>re ~o nitrogen; this trend will be growing towards 2000. N:P
ratio is expected to shift from the present value of about 1:1.5 towards
reco.aended by Institute of Agricultural Research ratio of 1:05. Potash
remain to be of lesser importance for Ethiopian soils.

Secondary nutrients: s. Ca, Kg will also be needed in the future to

control pH of soils. Alkaline soils will have to be treated with
a11110nium sulphate (the carrier of S), while acidic soils will have to be
limed (limestone and dolomite, carrying Ca and Hg).

There is no demand for micronutrients: Bo, Zn, Fe, Cu, Ho, Hn, Co at
present in Ethiopia.

Defining the optilllUJa future nutrients ratio is perhaps of greater

importance for Ethiopia than defining quantitative demand for nutrieuts by the
year 2000 - (for reference see Technical Assistance project proposal regarding
a seminar on fertilizer demand and nutrient ratio). Present N:P ratio is
around 1:1.5. This ratio is, to some extent, dictated by the transport unit
cost of fertilizer (concentrated DAP and urea are preferred). FAO's latest
recommendations are set for the nutrient ratio of N:P - 1:1 by the year 2000.
Local IAR recoaaends future nutrient ratio for N:P - 1:0.5.

As already discussed, LOW fertilizer demand scenario (in line with FAO
r~commendation) should be set for 400,000 HTPY of NPK by 2000, while HIGH
fertilizer demand scenario (in line with opinions of the Ministry of
Agriculture and Institute of Agricultural Research) might be set for 650,000
HTPY of NPK by 2000, provided that the civil war in Ethiopia will soon be over
and that there will not be constraints limiting fertilizer use, in particular
foreign exchange availability constraint will be eliminated. The amount of
fertilizer product by 2000 will be directly dependent on the nutrients ratio
and types of fertilizer products selected and may vary in the range of
700,000-1,400,000 HTPY. Because of great differences in opinions on future
demand and optimum fertilizer nutrients ratio, a seminar is recommended to be
held on this topic.

The EXTENSION SERVICES are recognized to be of utmost importance for

agricultural production increase in Ethiopia. Extension services are
supervised at the level of the Hinistry of Agriculture through Agricultural
Extension Department. In each uf 30 provinces (administrative regions) and in
each of the 107 districts, there are Heads, Group Leaders (extension) and
Subject matters Specialists (SHS) that supervise extension services. In e3ch
district SHS supervise Development Agents (DA) who are in direct touch wit.1
Contact Farmers and through Follower Farmers they reach about 5 million
peasants in Surplus Producing Areas. DA's operate in 1,607 Development
Centers bringing in extension information every 15 days to over 79,000 Contact
Farmers all over Ethiopia. Average ratio DAs:Farmers is as 1:1,300, and over
2 million farmers are reached through Training and Visit Hodel in 107
districts.

The extension sP.rvices are in particular important for the increase of

the rate of fertilizer adoption by farmers and, though extension services have
been improved significantly in the last years, it is critical that the
agricultural extension service is sufficiently endowed with funds and staff to
be able to reach an inr.reasing number of farmers, rspecially in the peasant
secto:.
 - 22 -

Policies in FER.TIS develope~nt em~race several issues, such as:

Peasant's access to technology pa~kages, i.e. fertilizers together with

delivery of improved seeds which is of particular relevance for
agricultural production increase in Ethiopia,

Facilitation in absorption of technology and access to industrial inputs

and services (improved agricultural methods, extension and advisory
services, fertilizer storage and fertilizer handling facilities and
infrastructure), which is estimated to be one of tht highest constraints
inhibiting agricultural growth in Ethiopia, all the more so that
agricultural credit has, in principle, never been a problem to the farmer
to such an extent as absorption of technology and access to industrial
inputs,

Government priorities in allocation of financial resources. For instance

export of coffee i.n 1989 brought earnings over US$250 million, ..rhile the
cost of fertilizer used was about US$3 million. Priority in access to
fertilizer has, however, been given to food crops (cereals). If priority
were given to coffee, access to industrial inputs and capabiliLy in
absorption of technology would be a constraining factor rather than a
financial resources for the purchase of fertilizers for coffee growers,

Pricing policies: price of fertilizer, subsidy level, crop price versus

fertilizer price in order to increase incentives for fertilizer use and
rate of fertilizer adoption in Ethiopia. Pricing policies are recognized
to be one of the most important component to halt declining per capita
food production in Ethiopia during the last two decades, and to reach
acceptable level of domestic food security.

See also Technical Assistance project proposal connected with training

package to AISCO.

1.3 Importance of the Fertilizer Industrial System in the Ethiopia economy

and Government development cbjectives related to the FERTIS

According to the Ten-Year Perspective Plan 1984/85 to 1993/94 one of the

principal objective is accelerating growth of the Ethiopian economy through
the expansion of the country's productive capacities in agriculture, mining
and industry.

Attainment of food self-sufficiency and at least a three month food

security reserve by the end of the plan period by raising agricultural
production is the most important of the adopted plan strategies, to which a
strategy of enlarging and diversifying exports and promoting import
substitution wherever it is found economi~ally feasible should be added, as
they are closely related to FERTIS development in Ethiopia. To intensify
inter-sectoral linkages particularly among agriculture, mining and industry,
the plan would promote import substitution based on the country's resources.
Industry is planned to commence the production of fertilizers in order to, at
least partially meet the requirements of agriculture for this input. In a
similar manner the mining sector would ?rodur.c (inter alia) potash and
limestone. In order to raise overall agricultural productivity, increasing
the supply of improved agricultural inputs to farmers will be essential. Jn
this respect, the agriculture sector plan envisages importinr, in greater
 - 23 -

quantities fertilizers, while agricultural research will be directed towards

raising the yield of indigenous crops through better application of
fertilizers. Total fertilizer consumption which amounted to 48,000 HT in
1983-84 is planned to increase to 395,000 HT by 1993-94, bringing the per
hectare rate of fertilizer use from 7.1 kg to 51.7 kg by 1993-94.

Closely connected with fERTIS sub-sectors of industry, such as: the

non-metallic mineral products, chemicals and metal industries are given
emphasis in the Perspective Plan, as they are key sub-sectors for supplying
agricultural sector essential inputs like fertilizers, and are expected to lay
down the basis for building heavy industries and to accelerate national
economic development. These sub-sectors are expected to grow at the rate
twice higher than the average rate of growth in industry.

Production target of fertilizer is to obtain from domestic facilities by

1993-94 as much as 270,000 HT of fertilizers of value estimated for 386
million Birr.

From the view point of the objective of transforming the production

struc~ure of industry and, especially, of supporting agriculture, the chemical
industry deserved a great emphasis in the Perspective Plan. Hence, a
substantial investment amounting to 935 million Birr or 22% of the total has
been allocated to this sector. The number of projects under this sub-sector
are 52, among which are FERTILIZER FACTORIES.

On the other hand, the strategies in the m1n1ng sector recognized

exploration of petroleum and natural gas as the dominante in the geological
survey's sub-sector list of projects (47% of the estimated investment
requirement). At the same time, potash development has been given priority in
investment requirements for the mineral development sub-sector (55% of the
estimated investment requirements), as this project is oriented both for
domestic and export markets.

The following are the major projects in the transport sector that are
planned to be executed during the ten-year plan period:

-Addis Ababa - Assab Railway line construction;

-Improvement of Addis Ababa - Djibouti Railway ~ine;
-Acquisition of locomotives and wagons;
-Acquisition of buses and trucks;
-Expansion of Assab and Massawa ports.

The objectives, strategies and priorities set up in the Perspective Plan

indicate importance and key position of the Fertilizer Industrial System in
:he development of the Ethiopian economy, in particular agriculture, being the
~oundation of the country's economy and playing a major role in generating the
financial surpluses, especially in foreign exchange, needed for financing
long-term industrialization programme i.n Ethiopia.

Linking priority projects in agriculture, industry, energy, mining and

transport sectors, FERTJS by itself can be recognized as a system to which the
highest priority is being given in long-term plans of development of the
Ethiopian economy.
 - 24 -

1.4 Ongoing development activities related to the FER.TIS

The most important activities, directly or indirectly related to FER.TIS,

known to be undertaken in Ethiopia are listed below:

A. Agriculture anc rural development

(a) Inter-American Development Bank (IDA) - US$85 million.

Support for the government's refor•-minded peasant agricultural

development programme, which has considerably liberalized grain
marketing, will help sustain the movement towar<l improving the
sector's incentive framework. facilitate the productio~
response among peasants, and mobilize support from other
donors. Total cost: US$li8.6 million.

(b) Peasant Cof:~P.e Development (IDA) - US$40 mill i_on

The project would strengthen Government support services for

food and coffee production in the major coffee producing
areas. Support would also be given to expanding washed coffee
primary processing factories, rehabilitating coffee hulleries
and improving export processing facilities.

(c) IDA - US$7 mi Uion

Through the construction of small-sca!e irrigation schemes in

drought affected areas, together with conservation and
agricultural support in Hararhge region, the problems caused by
frequent drought and increasing desertification will be
addressed. Co-financing is anticipated from International Fund
for \gricultural Development (IFAD) - US$12 million, the
Organisation of Petroleum Exporting Countries (OPEC) - Special
Fund - US$4 million, and the World Food Programme (WFP) - US$1
million. Total cost: US$33.7 million.

B. Transportation

(a) IDA - US$72 million

The turn around time of export-import cargo will be speeded up

by directly addressing the bottlenecks in the port of Assab,
freight forwarding, customs, and road transport - particularly
the road from Assab to Addis Ababa. Co-financing is
anticipated from the African Development Bank (AfDB) - US$55
million and the European Investment Bank - US$12.5 million.
Total cost: US$164.6 million.

(b) The Public Investment Program (PIP)

Road Transport Equipment (224.3 million Birr); Railways (!13

million Birr); Ports and Shipping (173.1 million Bin); Rood
Construction (511 million Birr).
 - 25 -

Congested ports due to the limited berthing storage capacity,

old and inadequate cargo handling equipment; insufficient road
carrying capacity and availability of vehicles to get goods
moved inland from the ports of Assab and Hassawa due to an old
and limited trucking fleet; insufficient rail carrying capacity
to move goods inland from the Port of Djibouti due to an old
railway; a striking lack of roads (both primary and rural)
throughout the country - these are the main issues addressed by
the Public Investment Programme.

Note: The uncertainty surrounding the Addis Ababa - Assab Railway

Project has tended to cloud the effort to relieve urgent transport
constraints. The high cost of the project suggest that the Government will be
unable to mobilize necessary resources. This project would be of great
importance to FERTIS development (transport of imported fertilizers to central
stores, movement of OAP (TSP) from Assah to central stores, shipment of
ammonia from nitrogen fertilizer complexes in the country to Assab).

C. Mining and energy

(a) IDA - Mining and energy - about US$55 million

Five major components:

(i) power transmi~sions and distribution;
(ii) small-scale gas utilization;
(iii) rehabilitation, modernization and expansiQn of Assab oil
refinery;
(iv) petroleum exploration promotion; and
(v) mining sector development.

Note: It is important to analyze how the demand for r~fined petroleum

products would change if the exploitation of gas reserves in Ogaden were to
prove economic. Donor support fer gas development and marketing studies and
an overall sub-sector strategy review are the logi~al next steps.

The f~asibility work on the development of the Dallol potash deposit has
been delayed because of the financial problems of ELMICO; the second phase of
the feasibility work will need to carefully consider the market
possibiliti~s. The potash exploration and development funds for EU1ICO
envisaged for 1986-1989 amounted to US$5.0 million.

D. Industry

(a) Public Investment Programme (PIP)

About 125 million Birr is allocated for the chemical sub-sector

which includes~ total of six projects. A review of these
projects shows that most of them a1e new. They do not appear
to have bP.en subjected to adequate preparation and appraisal
and their chances of implementation are therefore minimal.

Notes:

(i) As compared to many Sub-Saharan African countries, the manufacturing

industry in Ethiopia operates at a fairly high capacity.
 - 26 -

(ii) The Government declared objectives of promoting the small-scale

.ector, t~erefore it would be desirable to increase the share of the
small-scale industries in investm£,t at the cost of reducing the
share of the new large-scale projects which are concentrated in
capital-intensive undertakings. Mini-fertilizer plant project meets
this criterion, together with the criterion of small-scale g~s
utilization, and proj~ct A. c. above.

(iii) The main strategy in the Public Investment Programme focuses on

peasant agriculture and incorporates the concept of selectivity,
with investments concentrated in areas of highest production
potential. The high potential districts would receive priority
allocations of fertilizers and other inputs. This criterion, in
turn, would be met by large-capacity arnll'onia-urea compJex planned by
National Chemical Corporation at Metahara. Also, alternative
scenario (discussed in detail later on), envisaging the construction
of ammonia-urea plants at the region of Yirga Alem and at Mojo, meet
the above criterion even better.

(iv) Fertilizer DAP (TSP) versatile plant in Assab is highly connected

with the projects related to de-bottlenecking of ~ort of Assab,
improvement of road transport Assab-Addis Ababa, and the
Addis-Ababa-Assab (suspended!) project.

(v) Potash development to export-oriented project is related to

intensify road transport from the por~ of Massawa, as well as the
port of Assab.

1.5 Institutional framework for the development o1 the system

The Ten-Year Perspective Plan 198~-85 to 1993-9• is the most important

document binding the Ethiopian Goverruuent and its oqanization in the
development of economy. FERTIS finds its place and i~vestment cutlavs in this
plan, however, not as an isolated system, but rather iiS a system the elements
of which are intervolve into different sub-sectors of the economy.

The Government of Ethiopia launched a Three-Year Development Plan (TYl>P)

in July 1986, as the second phase of the Ten-Year Perspective Plan, with the
purpose of consolidating the recovery from the recent drought and overcoming
the long-term stagnation of the economy. This Plan reviews the Public
Investment Ptogramme (PIP), being a framework for some of the projects related
to the development of FERTIS.

To institutional framework should also be included all these projects

that are embraced within the scope of International Co-op~ration, and are
related to FERTIS development in Ethiopia, namely:

(a) The ninth session of the Joint Commission for Economic, Scientific
and Technical Co-operation bt 1een the People'~ 0emocratic Republic
of Ethiopia and t\,.,, German Democratic Republic was held in .Tune 1988
in Addi5 Ababa. Addis Ababa - .t.ssab Railway Project was discu;sed.

(u) The Tenth Session of Ethio-Yup,oslav .Joint Committee for Economic,

Scientific and Technical Cooperation was held in December 1988 in
Belp,rade. Lime Processinp, Plant Project wa5 dii::cussf>d.
 - 27 -

(c) The Eight Session of the Inter-Governmental Ethio-Soviet Commission

for Economic, Scientific and Technical Cooperation and Trade was
held in Addis Ababa in January 1989. The new project: Fertilizer
Plant based on local Natural Gas was discussed.

(d) UNIDO Pipeline Project: Consultancy in evaluation, production and

technology of industrial minerals and rocks.

(e) Status of Industrial Projects Financed from Bilateral and

Multilateral Sources (as of December 1988):

Fertilizer Factory - Romania - Preliminary Report submitted by the

Romanian side reviewed. Final report under preparation.

Aluminum Sulphate Factory - Poland - Detailed design under

preparation. Project indirectly related to FERTIS as it develops
sulphuric acid technology needed in future for the fertilizer
industry, however, on much bigger scale.

Another Fertilizer Factory - not allocated donor or source of

financement.

One of the most important institutional framework for FERTIS development

in Ethiopia are loans and credits approved by Agricultural and Industrial
Development Bank that has a fairly wide set of duties which enables it to play
effectively its development role and has the obligation of making positive
contribution to the economic develo?ment by providing production and
investment credits to all sectors of the economy. For instance, loans
approved in 1987 to Agriculture - 400 million Birr, Industry - 25 million
Birr, Other Sectors - 74 million Birr. Total of 500 million Birr.
I

- 28 -

2. PROGRAMME JUSTIFICATION

2.1 Problems to be addressed: bottlenecks and constraints hindering the

development of the system towards the Government objectives

The annual growth rate of fertilizer consumption in Ethiopia is estimated

by the World Bank for 18%. If the consumption of fertilizer nutrients
amounting to 100,000 HT of NPK in 1989 is projected at this grovth rate by the
year 2000, the resulting forecasted consumption of fertilizer wou!d be as high
as:

(1.18)11 x 100,000 HT of NPK = 618,000 MT of NPK.

This growth rate underscores the necessity of immediately considering the

question of establishing fertilizer manufacturing plants in Ethiopia, which is
in full correspondence with the assumptions of the Ten-Year Perspective Plan
1984-85 to 1993-94.

There are, however, important bottlenecks and constraints that hinder the
development of FERTIS in Ethiopia. The constraints are of different nature
and affect simultaneously several FERTIS components, thus bottlenecking its
development in many ways, causing cumulative, negPtive effects in the system.
The most important constraints are listed below:

(a) Civil war in Ethiopia, draining the budget and weakening the whole
economy, causing general unstability and breaking important
connections and the access to all regions, is a single, most
constraining factor, also affecting FERTIS development.

(b) Availability of foreign exchange is recognized to be one of the

strongest constraints in FERTIS development. The priority in access
te> foreign exchange with the proper policy measures aiming at
balanced FERTIS development is therefore critical to attaining food
self-sufficiency in Ethiopia.

(c) Generally poor infrastructure and weak rail-road transport network

in mountainous country is considered a great bottleneck in the
development of the fertilizer system, in which great masses of raw
materials and products are being handled.

(d) Insufficient developed raw material base is again one of the most
important constraints to developing fertilizer industry i.n
Ethiopia. Since raw materials play a decisive role in development
of the national fertilizer industry, th~re is an urgent need to
accelerate and expand surveys for FERTIS related raw materials
connected with primary and secondary nutrients as well as with
micro-nutrients.

This latter constraint is recognized as the most characteristic one for

the systt·m, and it is therefore analyzP.d below in more detail in the context
of problems to be addressed in order to develop FERTIS towards the Government
object i vcs and priorities (import subs ti tut ion and export promotion):

Natural gas has been found lately in the Ogaden region of Ethiopia. This
region is, however, characterizLd by a relatively poor general infrastructure,
 - 29 -

the gas deposit is located in remote area, the distance to crops producir.g
areas (highlands) is substantial, all these causing difficulties in the quick
development of the gas deposit.

And though there is a high demand fo~ nitrogen fertilizers in Ethiopia,

the establishment of a large-seal~ capacity ammonia-urea complex in this area
(Calub or Gode) would not be justified because:

there is no market for n~trogen fertilizers in this area;

investment location factor would be at least around 2.0. compared to the

investment location f~ctor of around l.S in the locations with some
infrastructure;

the cost of transporting ure~ from Calub-Gode area to the cropping areas
at the Ethiopian Highlands would be in the range of at least
US$100-US$120 per l HT of urea, thus all the potential competitiveness to
imported urea would be lost.

The NCC plan of constructirg an ammonia-urea mini-fertilizer plant in the

natural gas deposit area (Gode) seems to have also many drawbacks:

the plant capacity would not fit to steeply growing nitrogen demand in
Ethiopia, and still considerable investment would be necessary for the
next nitrogen fertilizer plants;

there is no sufficient demand for urea in the Ogaden region and high urea
transportation cost would be involved to bring the product to the
highlands, unless there is an export agreement signed ~ith Somalia for
urea deliveries to Belet Uen region;

not only location factor for investment would be high, but also economy
of scale would not be gained, thus substantially increasing manufacturing
cost of urea and lowering the efficiency of p1oduction, hence, decreasing
viability of the project.

On the other hand, the construction of a large-scale ammonia-urea complex

in the cropping area (in order to win the economy of scale and to bring the
product as close to consuming areas as possible to avoid its costly
transportation) is also not an easy option as it is inevitably connected with
the necessity of pipelining natural gas to the plant site which, in turn,
would increase the total investment cost of the whole enterprise (investment
for the pipeline).

All this shows that an optimum solution should be looked for in the
development of the nitrogen fertilizer industry in Ethiopia.

Also, further intensive surveys and exploration of potential new sources

of natural gas (in particular on the Red Sea coast) are highly recommended, as
the new gas deposits may prove to be more suitable located for the development
of the domestic nitrogen fertilizer industry.

The realization of the planned Addis Ababa - Assab Railway Project might
also have an impact for the development of nitrogen fertilizer industry in
Ethiopia, as it might then be reasonable to substitute ammonia import~d to
 - 30 -

Assab with ammonia produced in a large-scale ammonia plant located in central

provinces.

Though there are known occurences of phosp~.ates, apatites and sulphur

bearing raw materials in Ethiopia (see enclosed Technical Assistance project
proposal and enclosed maps), the raw material endowment and the stage of their
development is not sufficiert to plan at the present time production of
phosphate fertilizers basing on domestic raw materials.

Therefore either phosphoric acid and (or) phcsphate rock and sulphur will
have to be imported to Ethiopia in the foreseeable future in order to
manufacture phosphate fertilizers. The Government's plan cf establishing a
phosphate fertilizer complex (DAP, TSP) in the vicinity of the port of Assab
seems therefore to be justified. At the same time, intensive surveys and
exploration of domestic resources: phosphate rock (apatite) and sulphur
(pyrite) are of a great importance for decreasing dependency on imported
ph~sphoric acid.

Sulphur, needed in the manufacture of phosphate fertilizers, may also be

used as a secondary nutrient when applied in such fertilizers as ammonium
sulphate, single superphosphate and potassium sulphate. Again, the prospects
of development the sulphuric acid industry by the year 2000 on the basis of
domestic raw materials seem to be remote.

Potash ores have been found long ago, and a lot of work have been done so
far, however, because of the guerilla activity in Tigre region (Dallol and
Musley potash orebody area) the feasibility study had to be stopped in 1986,
thus hindering the development of the system towards the Government's
objectives aiming at the establishment of the export-oriented world-scale
capacity potash fertilizer complex.

There are a lot of limestone-dolomite occurences in Ethiopia, in

particular in the eastern regions of the country, that could be relatively
soon developed to serve as a source of secondary nutrients (Ca, Mg) and as
liming materials to decrease acidity of soils. Since acidic soils are located
mostly in western regions of the country, once again logistics and
t~ansportation constraints come into consideration.

Though the use of micro-nutrients in the Ethiopian agriculture seems to

be premature at the present time, the activities connected with surveying and
prospecting to micronutrients (Bo, Zn, Fe, Cu, Mn, Mo, Co) should start in the
nearest future in order to work-out the foundations for exploration,
processing and tleliveries of micro-elements to agriculture by the year 2000.

The list of constraints and bottlenecks hindering the development of the

fertilizer industrial system in Ethiopia is far from exhaustion, the above
examples showing only how complex situation might be.

The remote location of raw materials, availability of energy and water,

insufficient storage capacity, lack of unloading facilities in ports,
shortages of trucks and wagons, difficulties in access to import (export)
markets, lack of experience in investment, operation and maintenance of
fertilizer plants and complexes, environmental. impact of fertilizer industry,
insufficient recognition of optimum N:P:K:S nutrient ratio and optimum types
of fertilizers to be used, effectiveness and incentives of fertilizer use,
 - 31 -

extension services. policy measures. pricing relations. and others - are to a

different extent problems and issues that may influence negatively for. FERTIS
development in Ethiopia if not handled and solved timely and properly.

The more ambitious targets and objectjves of FERTIS development based on

the domestic fertilizer industry. the more constraining influence of the
discussed bo.ttlenecks for the system will be, therefore of great importance
are analyses of alternative development strategies and various options for
overcoming bottlenecks and constraints of the system.

2.2 Analysis of alternative development strategies

Insufiicient justification of future fertilizer demand in Ethiopia and

expected optimum N:P:K nutrients ratio, have led to analysis of the FERTIS
alternative strategies. These strategies are presented in FERTIS block
diagrammes: Programme Minimum (Low scenario) for the time-base: year 2000, and
Programme Maximum (High scenario) for the time-base: /ear 2000 and beyond.

Although the Government objectives and FERTIS development strategies aim

at the proper directions, they cannot be, however, supported to the full
extent for reasons already discussed and described in relevant to the
Technical Assistance project ~roposals enclosed in this study. The most
important issues related to the Government programme embrace:

(a) OAP (TSP) versatile plant in Assab

The versatility of the plant is a drawback in adopting newest OAP pipe

reactor technology and would cause limitation of achieving maximum daily and
yearly capacities, thus increasing manufacturing cost, all the more so that
investment for a versatile plant would be higher than for recommended OAP
plant. OAP is a fertilizer mostly looked for, production of OAP guarantee
achieving highest revenues per unit of valuable foreign exchange. Unloading
of liquid ammonia and phosphoric acid might be realized (similarly as in
Senegal) out of the shore, from buoys located on the sea shelf, thus reducing
unloading costs. Unit cost of DAP (18-46-u) transported to Nazareth-Addis
Ababa is lower than that of TSP, when pure nutrients are considered
(note: TSP-0-46-0). In the light of foreign exchange deficit, investment in
OAP should ge~ priority over TSP. Tr.iple superphosphate, needed for pulses
and oil crops destined for export, should be imp~rted in the first phase, all
the more so that urea should be given priority in investment plans over TSP.
TSP plant might be built in the second-third phase of FERTIS development in
Ethiopia.

(b) Ammonia-urea mini-fertilizer plant at Gode

This had been already broadly discussed. The plant does not fit to a
very high nitrogen demand in Ethiopia, all the more so that N:P nutrient ratio
is expected to shift in favour to nitrogen. High investment location factor,
high manufacturing cost of urea, high transportation cost to urea market
centers (as there is no market in Gode) indicates that this idea is not an
optimum one, all the more so that a world-scale ammonia-urea p]ant is planned
at Metahara soon after plant in Gode.

Ammonia-urea plant in Yirga Alem area is recommended in Prop,ramme

Mi.nimum, and ammonia-urea in Virga Alem (Phase I), supp]ementc·d with an
 - 32 -

aJ11110nia-urea ccmplex in Kojo (Phase II). is recomaended in Programme Kaxinaia.

South-vest natural gas pipeline route is considered to be more advantageous in
FER.TIS iaport subs~itution scenario that east-north route of natural gas
pipeline (see attached map for reference).

(c) World-scale a1111<>nia-urea complex at Hetahara

This idea is right in principle. however, other locations for nitrogen

fertilizer complexes seem to be more advantageous, both from the point of view
of import substitution scenario. as well as broader range of urea distribution
at the Ethiopia Highlands (Yirga Alem + Mojo). Natural Park and wildlife
sanctuary in Metahara region do not favour this location because of
environmental impact of nitrogen fertilizer complex for game reserve and plant
habitat. Metahara is not an optimum location for coffee growing areas, where
urea is demanded.

(d) Potash fertilizer complex at Dallol

Based on the domestic potash ore and export-oriented is right idea. The
project should be, however, either phased to save valuable foreign exchange
for other fertilizer plants, or scheduled in investment plans of FER.TIS
development in the most convenient time for the overall programme. Decisions
on potash project, because of guerilla conflict in Tigre region, cannot be
treated as firm ones, but rather indicative. The Potash project is
recommended to be phased. Progra11111e Minimum includes Phase I by 2000.
Programme Maximum includes Phases I and II in one step by 2000 or beyond 2000.

2.3 Quantitative analysis of various options for overcoming bottlenecks and

constraints in order to reach FER.TIS priority targets

Fovd self-sufficiency is recognized to be first priority target in

Ethiopia, while: civil war, availability of foreign exchange, poor transport
network and infrastructure, insufficiently developed raw material base - have
been recognized as major constraints and bottlenecks hindering FERTIS
development.

Designed options aim therefore at reaching priority target and at

overcoming (diminishing) bottlenecks and constraints of the system.

Programme Minimum (Low scenario)

This option of FERTIS development is designed on the bases of fertilizer

recommendations presented in FAO Study •Ethiopian Agriculture - Crop Yield
Response and Fertilizer Policies", Variant D4 (High Acreage Expansion to 8.5
million ha of cultivated area by 2000, High Subsidy to Fertilizer 30%, High
Adoption of Fertilizer by Farmers 45%), in which the total nutrients delivered
to soils estimated for 389,000 HT of NPK by 2000 with N:P ratio 1:1. Variant
D4 assumes surplus of cereals by 2000 around 1 million tonnes,
self-sufficiency ratio in cereals of 108%, and per capita DES 2,326 kcal.

Progra1D1De Minimum (Low scenario) assumes that civil war in Ethiopia will
be ended not later than till 1993, thus substantially le~sening the foreign
exchange burden by 2000, providing access to all regions (including port of
Assab, Assab-Addis Ababa Corridor, Dallol potash deposit, and ~ccess to
deposits of other raw materials). Also, this would make it safe to built - at
 - 33 -

least first phase of a south - vest natural gas pipeline segment connecting
Calub and Yirga Alea.

Progra...e Minimum (Lov scenario) envisages:

Construction of DAP plant of the capacity 800 TPD in Assab;

Construction of Ammonia-Urea complex of the capacity 500 TPD of

alll90nia and 800 TPD of urea in Yirga Alem area ( Phase I of the
nitrogen industry development in Ethiopia);

Construction of Huriate of Potash (HOP) plant of the capacity 2000

TPD and Sulphate of Potash (SOP) plant of the capacity 400 TPD in
Dallol (Phase I of the potash fertilizer complex in Ethiopia};

Development of the domestic deposits of phosphate rock (apatite) and

sulphur (pyrite);

Development of sec~ndary nutrients (Ca, Hg - limestone and dolomite

for liming acidi· ~ils).

Programme minimum envisages supple111<entary import of:

liquid ammonia 56,000 MTPY and phosphoric acid 120,000 HTPY of P205
to feed DAP plant in Assab,

nitrogen and phosphate fertilizers DAP, TSP, NPK in order to add

32,000 HTPY of N and 84,000 MTPY of P205 to the nutrients supply
balance (approximately 30% of fertilizers would be imported.).

Note: Imported fertilizers might be brought to Assab in bulk and packed

at the site. if the viability of PE-PP packaging unit would be confirmed.

The total nutrients delivered to soils would amount to 400,000 HTPY of

~PK, with the resulting N:P:K ratio of 1:1:0.1.

Fertilizer application rate would grow to 47 kg NPK per hectare of

cultivated area (around 22 kg NPK rer ha of arable land with permanent crops).

The total fertilizer product delivered to soils would amount to 700,000

HTPY, of that to the peasant sector about 550,000 HTPY.

Programme minimum envisages export of potash (HOP + SOP) from Dallol

amounting to 0.44 million HTPY of Kio.

Programme HaxilllWll (High scenario)

High scenario of FERTIS development in Ethiopia has been designed on the

basis cf recommendations of Institute of Agricultural Research and Ministry of
Agriculture, and confronted with Yorld Bank opinion.

If th•• Yorld Bank assumption on fertilizer cansumption growth of 19% per

annum is taken into consideration, fertilizer demand as high as about 620,000
"fTPY of NPK should be assumed by thP year 2000.
 - 34 -

Taking into account recommendations of IAR on an optimum level of

fertilization rate of ainimum 80 kg NPK per hectare of cultivated area and
assuain.~ the acreage of cultivated area for 8.5 aillion ha by 2000, one can
estiaate deaand for NPK nutrients for:

8.5 aillion ha x 80 kg NPK per ha - 680.000 KTPY of NPK.

Average NPK demand 2000 derived fro• the estimates of the ~orld Bank and
IAR a11«>unts to about 650,000 KTPY of NPK.

Recommended by IAR nutrient ratio N:P - 1:0.5 implies respective balances

of nitrogen, phosphate and fertilizer products to be supplied to soils by 2000
(see FERTIS Block Diagra11111e for reference).

Prograllllle maximwa (High scenario) envisages:

Construction of OAP plant of the capacity 800 TFD in Assab,

Construction of DAP-TSP versatile plant in Assab of the capacity 600

TPD,

Construction of NPK plant in Assab of the capacity 500 TPD,

Construction of Ammonia-Urea complex of the capacity 500 TPD of A

and 800 TPD of U in Yirga Alem area,

Construction of Ammonia-Urea complex in Kojo of the capacity 2 x 500

TPD ailJDonia and 2 x 800 TPD urea,

Construction of Ammonium Sulphate plaPt in Hojo of the capacity 250

TPD (based on imported sulphu1· to feed sulphuric acid plant of the
capacity 200 TPD),

Construction of HOP plant 4,000 TPD an~ SOP plant 800 TPD in Dallol,

Developme~t of domestic raw materials: phosphate rock (apatite),

sulphur (pyrite), limestone \oolomite) and some micro-nutrients
based on local resources.

Programme maximum envisages supplementary import of:

liquid ammonia 102,000 HTPY and phosphoric acid 216,000 HTPY of P205
and phosphate rock 40,000 HTPY to feed DAP-TSP-NPK complex in Assab.

Note: Import of ammonia might be substituted from ammonia plant in Hojo,

subject of the realization of the Addis Ababa-Assab Railway Project.

cl~mental sulphur {brimstone) 20,000 HTPY to feed SA plant in Hojo.

No fertilizer products ;.r•. envisaged to be imported.

Programme maximum assumes Fertilizer Import Substitution Sccn;irio.

The total nutrients delivered to soils would amount. to 6SO,OOO MTPY of

NPK, with the resultinp, N:P:K ratio of 1:0.50:0.06.
 - 35 -

Fertilizer application rate would grow to 76 kg NPK per ha of cultivated

area (around 36 kg NPK per ha of arable land with permanent crops).

The total fertilizer products delivered to soils would amount to

1,340,000 HTPY, of thA~ to the peasant sector around 1,100,000 HTPY of
fertilizer.

Progra11111e maximum envisages export of potash (MOP+ SOP) from Dallol,

amounting to 0.9 million HTPY of K20.

Because of existing FERTIS constraints, Programme maximum may go beyond

2000 in order to cover broad list of planned investment projects.

2.4 Evaluation and selection of preferred strategy

It is very difficult to select preferred strategy of the FERTIS

development in Ethiopia, as the country is involved in guerilla conflicts
(that may either cease or intensify).

Soon ending of civil war is a pre-condition for any serious strategy of

FERTIS development.

If the assumption of civil war ending is adopted, Programme maximum (High

scenario) seems to be a much more attractive strategy than the Low scenario
for the following reasons:

(a) High scenario assures the attainment of the Government's priority

target of food self-sufficiency in Ethiopia. Even in the case of
great difficulties to reach planned targets of cultivable area
expansion up to 8.5 million ha, what may be endangered for many
reasons (quick deforestation, desertification and soil degradation),
the supply of 650,000 HTPY of NPK by 2000 would probably guarantee
the attainment of food self-sufficiency with the present acreage of
cultivated area, estimated for about 7 million hectares.

(b) High scenario strategy bases on domestic raw materials: natural gas
and potash, aiming on the one hand at the total import substitution
of nitrogen fertilizers (and possibly al'dlllonia to be used in OAP
plant in Assab - subject of completion of Addis Ababa - Assab
Railway Project), and on the other hand at export promotion of
potash fertilizers, thus aiming at decreasing foreign exchange
burden in the country.

(c) High scenario assumes shifting of N:P ratio to be rP,commended by IAR

value of 1:0.5, which imposes to give a priority to nitrogen
component in the system. Thus, ammonia and urea would be the
backbone of FERTIS development strategy in Ethiopia.

(d) Huge cap~city of ammonia-urea plants on the one hand utilize the
economy of scale, arid on the other hand help to justify expenses for
the construction of a natural gas pipeline Calub-Addis Ababa.

(e) The foreign exchange burden may force to built a natural gas
pipeline in two phases. High scenario envisages this option. Phase
I pipeline might end at Yirga A]cm area, where the tirst nitrop,en
 - 36 -

fertilizer complex is to be l~cated, mostly in order to boost coffee

output fer P.Xport and to earn foreign exchange for the Phase II of
the progra11111e (nitrogen complex at Kojo).

(f) South-west route of natural gas pipeline is recommended in this

study, as this option is more justified for FERTIS development based
on import substitution scenario. Landed cost of imported urea loco
Yirga Alem is estim:;.ted for about US$325 per l KT (of that about
US$140 for transport of 1 Ht of urea from Assab to Yirga Alem
area). It is therefore assumed that urea manufacturing cost at
Yirga Alem nitrogen fertilizer complex may be competitive to the
cost of imported urea sent to Yirga Alem. South-west route of the
pipeline is safer when guerilla activity is considered, than
east-north natural gas pipeline.

(g) South-west route of the natural gas pipeline from Calub to Addis
Ababa guarantee selection of better locations for nitrogen
fertilizer complexes in Phase I (Yirga Alem area) and Phase II
(Mojo) when distribution of fertilizers is taken into consideration
(cropping areas located at the Ethiopian Highlands, mostly in shewa,
Arsi and Gojam). Hojo is located between central stores. For
reference see attached maps.

(h) High scenario envisages the construction of a fertilizer complex in

Assab producing DAP, TSP, NPK, hence fully harmonized with the
growing demand for those fertilizers in Ethiopia (TSP for oil crops
and pulses and NPK for coffee).

In the past alternative only phosphate component may be kept

imported to Assab by 2000, as both ammonia and muriate of potash
could be delivered to Assab from domestic production (Mojo, Dallol).

Discovery of the new natural gas deposit on the Red Sea coast
(shelf) is also very probable, as Sudanese and Yemen examples show,
in particular in peaceful conditions when gas exploration is
intensified by using the most modern computer techniques.

Also, phosphates and sulphur might be eliminated from imports after

2000, if only intensive surveys and explorations are continued.

The Assab fertilizer complex may as well b'"! phased (subject to

foreign exchange availability), for instance: Phase I - DAP; Phase
II - DAP-TSP; Phase III - NPK.

(i) Export-oriented potash project in Dallol, envisaged in High scenario

for the capacity of 0.9 million KTPY of K20, could also be phased
depending on the recognition of foreign markets for MOP and SOP and
on foreign exchange availability.

(j) High scenario gives a flexibility in phase-wise pldnninr, and

investing in FERTIS development, as major ferti 1 i u,,. comp) exes in
Mojo, Assah and Dallol might be phased.

(k) FertU izcr b.1lanccs haVf! ;,een designed in lligh sc<"nario for 650,000
MTPY of NPK, with the assumption of a relatively high On-stream
 - 37 -

factor around 0.9 (about 300 days of plants operation per year).
However. if 70% of designed capacity utilization is assumed, only
455,000 HTPY of NPK would be delivered to agriculture. High
scenario should therefore be considered as the one guaranteeing to
achieve easily Low scenario targets. even when general industrial
conditions are unfavourable.

(1) Steeply growing quantity of fertilizer products, the distribution of

which may pose some problems, should be recognized as the biggest
drawback of High scenario. Phase-wise realization of the investment
programme, harmonized with the general development of
infrastructure, is believed to be the best answer to this constraint
and to foreign exchange availability constraint. A considerable
distance between planned fertilizer complexes in Assab, Yirga Alem,
Mojo and Dallol, and the possibility of using ports of: Assab.
Hassawa, Mersa Fatma and Djibouti should be a guarantee of the
elimination of major bottlenecks in transport and distribution of
FERTIS raw materials and products.

(m) High scenario is designed for the time base by 2000 and beyond
2000. Therefore, depending on the level of the overall country's
recovery after civil war, High scenario can be flexibly adjusted to
the real potential of the Ethiopian economy in allocating investment
sources for PESTIS development.

High scenario is designed for a long-term programme (therefore

r~ferred to in this study as Programme Maximum). The situation may
as well exist that the programme fits rather to the years 2005-2010
than to the year 2000. This, however, will be dependent first of
all on how soon civil war may end, to enable dynamic growth of the
Ethiopian ~conomy.

.. ,
 - 38 -

2.5 Expected end-of-programme situation

A comparison of the stage of development of the fertilizer industrial

system in Ethiopia in 1989 with the Government's targets and programmes
designed according to Low and High scenarios is presented below (all
capacities eY.pressed in 000 KTPY of product):

LOCATION FERTIS 1989 GOVEkNHENT LOW SCENARIO HIGH SCENARIO

TARGET 2000 2000 2000 AND BEYOND

Ass ab Imports of OAF' (TSP) DAP (240) OAP (240) +

fertilizer 240 (170) DAP-fSP (70-100) +
(170) NPK (160)

Gode Ammonia +
ur~a 50

Hetahara East-North
NG Pipeline
A (450)
u 750
Yirga Alem South-West South-West NG
NG Pipeline Pipeline
A (150) A (150)
U (26C) u (260)
Hojo South-West NG
Pipeline
A (300) + U (460) +
AS 75

Dallol HOP (1,300) HOP (650) MOP (1, 300)

~~~~~~~~~~~~~s_O_P~<~2_4_0~>~~-s_or (120) SOP (240)

Ethiopia Development Development of:

of: P, S, P, S, Ca, Hg,
Ca, Mg Micro-nutrient

In recommended High scenario, anticipated foreign exchange earnings would

be derived from:

Assab DAP-TSP-NPK ccmplex, substituting imports of fertilizers for

imports of ammonia, phosphoric acid and phosphate rock.

Yirp,a Alem Ammonia-Urea complex, delivering urea mostly to regional

coffee and cash crops growers on a competitive basis to imported
urea, thus providing foreign cxchanp,e savings from imports of urea ,
and p,enerati.ng foreign exchange from increased exports of coffee.

Mojo Ammonia-Urea-Ammonium Sulphate complex, delivering fertilizers

to the llighlands, thus providing foreign exchange savings from
import substitution of urea Hnd p,encratin~ foreip,n exchange from
 - 39 -

import substitution of food crops and from increased exports of cash

crops.

Dallol MOP-SOP complex, generating forei~n exchange from exports of

potash fertilizers.

!~ High scenario, imports of fertilizers would be (in principle) totally

substituted by domestic production. At the same time export of potash would
be promoted.
 - 40 -

3. INTEGRATED DEVELOPMENT PROGRAMME

3.1 Progra1111e objectives

The Indicative Programme for the Integrated Development of the Fertilizer

Industrial System in Ethiopia aims at:

Strengthening the Government's capability for planning and coordination

of development in the fertilizer industry subsector.

Helping in the formulation of Government policies related to the

development of the Fertilizer Industrial System in Ethiopia.

Strengthening the capabilities of AISCO in procurement, trading and

logistics in fertilizer distributicn, beginning with the international
market and ending with fertilizer delivery to the farm gate.

Strengthening the capabilities of the National Chemical Corporation in

planning investmen~. selection technological processes and economical
options optimum for FERTIS develop~ent.

Helping El.HICO with promoting f}Otash export oriented project.

Defining the long-term objectives and strategies for the creation of the
domestic fertilizer industry in Ethiopia, taking into consideration
different o~tions, techno-economi~ alternatives and scenarios.

Defining phase-wise alternative FERTIS development scenario, in order to

improve national plans of investment into the fertilizer industry.

Overall Programme Objectives are best defined when comparing actions in

investment and Technical Assistance actions between FERTIS country-group I and
Ethiopia. The identificativn of group-specific actions by the year 2000 is
presented below:
 - 41 -

IDENTIFICATION OF GROUP-SPECIFIC ACTIONS IN SURVEY, PREPARATION AND

IMPLEMENTATION OF REHABILITATION, MODERNIZATION REVAMPING AND NEW INVESTMENT
PROJECTS IN THE FERTILIZER INDUSTRIAL SYSTEM "FERTIS" IN AFRICA BY THE YEAR
2000.
 4l/- 43 -

3.2 Policy measures

In order to facilitate the implementation of FERTIS programmes and

targets, a number of policy issues should be studied in detail and appropriate
measures to resolve them should be taken in the course of implementation of
the Integrated Development of the Fertilizer Industrial System in Ethiopia.

The most important policy issues are listed below:

(a) Food and nutrition priority policies, in order to provide peasant

farmers with:

access to technology packages (fertilizers, seeds, pesticides,

credit, etc.)

access to agricultural extension and advisory services

rural infrastructure development, especially access roads, storage

facilities, marketing centers, etc.

(b) Price determination and pricing policy (crop producer price

incentives and access to markets; crop vs. fertilizer price ratio,
fertilizer price subsidy, etc.).

(c) Policies related to technology transfer and development:

-research and development promotion and capability in FERTIS;

-technology transfer and adaption capability in FERTIS;

-training in technol1gy information collection and exchange within

industry sector. including fertilizer industry;

-research and development programmes relating to the various

subsectors of agriculture, in order to accelerate the process of
transfering, adapting and absorbing agricultural inputs and
technologies;

(d) Policies related to the promotion of import substitution and export

promotion strategies, directly related to FERTIS.

(e) Investment related policy issues, in order to strengthen the

capabilities of contracting technologies and equipment needed for
the creation of domestic fertilizer industry and its proper
functioning in the future (manpower training, technical norms and
standards, environmental protection standards, etc.).

(f) Sectoral and subsectoral policies in agriculture, industry, m1n1ng,

energy, water resources, construction, trade (foreign and domestic),
transport, manpower - in order to assure FERTIS integrated and
balanced development, fully harmonized with the development of the
overall economy.

Policies relating to: soil conservaticn, supply of spare parts to

fertilizer plants, exploration of FEkTIS relatrd raw materials,
 - 44 -

natural gas development, water protection from fertilizer pollution,

fertilizer installations assembly and civil works execution,
fertilizer procurement, ports and transportation ne~work
rehabilitation and improvement, and manpower training for FERTIS -
may be 1uoted here as the most relevant to FERTIS development in
Ethiopia.

3.3 Technical assistance projects

A list of technical assistance (investment) projects relating to FERTIS

development in Ethiopia has been presented below:

FERTILIZER INDUSTRIAL SYSTEM I~ ETHIOPIA

LIST OF TECHNICAL ASSISTANCE/INVESTMENT PROJECT DOCUMENTS

1. National Chemical Corporation - CONSULTANCY SERVICES ON AMMONIA-UREA

HINl-FERTILIZER PLANT AT GODE.

Continuous assistance from inquiry and bid evaluation, through pre-

qualification of contractors, preparation of technical appendixes to the
contract, evaluation of technical documents of the contract, up to the
technical assistance of the plant operation for one year after its
commissioning and start-up.

The project includes also component of staff training in Assab refinery

in Ethiopia and outside Ethiopia in: management, operation and
maintenance of a1Jllllonia/urea plants.

Indicative cost of the project to be borne by UNIDO - US$ 400,000.

Project realization time-base: 1990-1994.

2. National Chemical Corporation - TECHNO-ECONOHIC APPRAISAL OF THE

VIABILITY OF AMMONIA-UREA COMPLEX LOCATED IN THE CROPPING AREA WITH THE
NATURAL GAS PIPELINING TO THE NEW LOCATION.

The project is an alternative scenario for the project no. 1 above.

Indicative cost to be borne by UNIDO - US$ 100,000.

Project realization time-base: 1990.

3. National Chemical Corporation - TRAINING SERVICES RELATED TO OAP/TSP

COMPLEX IN ASSAB.

The project related to institutional strengthening of NCC management to

be prepared to negotiate contracts for OAP/TSP versatile plant, including
ammonia/phosphoric acid/phosphate rock storage facilities in the port, as
well as lon~-term agreements on purchasing/counter-trading, bartering
ammonia, phosphoric acid and phosphate rock.

Indicative cost to be borne by UNIDO - US$ 100,000.

Project realization time-base: 1990.

 - 45 -

4. Ethiopian Institute of Geological Survey - FEASIBILITY STUDIES ON RAW

MATERIALS RELATED TO FER.TIS DEVELOPMENT.

The project related to surveying, mapping and exploration of apatite,

phosphate rock, pyrites and limestone in Ethiopia, in order to back-~p in
the future the fertilizer industry with domestic raw materials.

Indicative cost to be borne by UNIDO - US$ 3 million.

Project realization time-base: 1990-1993.

5. Agricultural Input Supply Corporation - THE PACKAGE OF TRAINING

PROGRAMMES TO STRENGTHEN MANAGERIAL AND OPERATIONAL CAPABILITY OF AISCO
in:

operation and maintenance of mobile fertilizer bagging units;

procurement/contracting and trading imported fertilizers;

logistics, storage, transport and distribution of fertilizer.

Indicative cost to be borne by UNIDO - US$ 300,000.

Project realization time-base: 1990-1991.

6. Agricultural Input Supply Corporation - PRE-FEASIBILITY STUDY ON THE

VIABILITY OF THE ESTABLISHMENT OF PE/PP FERTILIZER PACKAGING UNIT IN
ASSAB.

The project aims at decreasing the cost of imported bagged fertilizers:

DAP and Urea through production of own PE/PP bags and bagging fertilizers
imported in bulk.

Indicative cost to be ~orne by UNIDO - US$ 50,000.

Project realization time-base: 1990/1991.

7. Ministry of Agriculture, Ministry of Industry, Ministry of Mines and

Energy, FAO, UNIDO - SEMINAR ON FERTILIZER DEMAND BY 2000, OPTIMUM N:P:K
RATIOS, OPTIMUM TYPES AND GRADES OF FERTILIZERS, FERTILIZER AFFINITY TO
THE LOCAL SOILS AND CROPS.

The aim of the project is to define and specify mor~ precisely the future
objectives and targets in FERTIS in order to reach full agreement and
coordination of objectives in fertilizer demand, fertilizer production
and exploration of the domestic raw materials related to FERTIS. An
UNIDO/FAO study may follow-up in a later stage.

Indicative cost to be borne by UNIDO for seminar - US$ 50,000.

Project realization time-base: 1990.

 - 46 -

8. Ethiopia-Libya Potash Company - STAND-BY PROJECT RELATED TO POTASH

EXPLORATION IN DALLOL IN ETHIOPIA.

The final target of the project is to establish open-pit/solution potash

mine yielding muriate of potash, sulphate of potash (and possibly other
salts) in the world-scale capacity potash complex. Both deposits and the
quality of potash ores with kainite give very good prospects for potash
export-oriented project delivering MOP and SOP to Eastern Africa and
Indian Ocean countries.

THE PROJECT IS STAND-BY BECAUSE THERE IS AT PRESENT NO ACCESS TO THE

DEPOSITS LOCATED IN THE TIGRE AREA IN THE CIVIL WAR ZONE.

Indicative cost depends on the time base and the scale of activities
UNIDO could undertake in continuation of this project. This can only be
assessed when the civil war in Ethiopia is over.

US$ 2 million have beP.n envisaged tentatively for the complex programme.

TOTAL INDICATIVE COST TO BE BORNE BY UN AGENCIES IS ESTIMATED FOR

APPROXIMATELY US$ 5 MILLION.

Out of the eight Technical Assistance Project Proposals, six are directly
or indirectly relating to the potential investment actions that ID2Y be taken
up in the course of creating the national fertilizer industry in Ethiopia.

It is believed that TA project proposals will be helpful in answering the

most important questions on fertilizer demand and optimum N:P ratio, and in
defining future strategies and scenarios in the FERTIS development, before
final investment decisions are undertaken.

Clear definition of the long-term objectives and strategies fo: the

FERTIS development is believed to be of paramount importance for the smooth
creation of the national fertilizer industry, its high efficiency and reliable
operation.

The whole time schedule for implementation of the programme for the
Integrated.Development of the FERTIS in Ethiopia is estimated for the duration
of 52 months. In this period UNIDO may be involved either directly or
indirectly into Technical Assistance projects included in the programme.

TA projects Nos. 2 and 7 are believed to be the most urgent, not to

hamper investment decisions relating to fertilizer plants planned in Assab and
Gode, but to accelerate rather the whole process of FERTIS development in
Ethiopia through defining optimum investment options and strategies, backed by
proper policy measures. Therefore, both TA projects (T-E appraisal of the
viability of ammonia-urea complex in the cropping area with the natural gas
pipelining to the new location; and seminar on fertilizer demand by 2000,
optimum N:P:K ratios, optimum types and grades of fertilizers, fertilizer
affinity to the local soils and crops) are expected t.o be launched in the
second qu~rter of 1990.
 - 47 -

It is extremely difficult to define time schedule for the stand-by TA

project related to potash exploration in Dallol, as it is directly relating to
the situation in the Tigre region gripped by the guerilla activity.
Therefore, according to assumptions of High Scenario, this TA project is
expected to co....ence in the beginning of 1991.

The TIME SCHEDULE for the TECHNICAL ASSISTANCE PROGRAMME is seen below.
 - 48 -

TIH~ SCHEDULE FOR THE TECHNICAL ASSISTANCE PROGRAMME

(Part 1)

YEARS AND QUARTERS

Mo. T£CllMICAL ~!STANCE PRQJECTS 122.Q l.ru lill l.ru lW

II Ill IV II III IV II Ill IV II Ill IV II Ill IV

1. National Chemical Corporation

Consultancy Services on ~nia Urea mini-fertilizer
plant at Gode

2. National Chemical Corporation

'fechno-tcOllOlllc Appraisal of the viability of A-U
C01plex located in the cropping area with the
natural gas pipelinir19 to the new location

3. National Chmical Corporation

Traini119 Services related to OAP-TSP complex in Assab

4. Ethiopian Institute of Geological Survey

Feasibility st\dies on raw 111aterials related to
FERTI:> develo19nt

s. Agricultural Input Supply Corporation - The package

of training progra111es to strenqthen managerial and
operational capability of AISCO
 - 49 -

TIHE SCHEDULE FOR THE TECHNICAL ASSISTANCE PROGRAMME

(Part 2)

YEARS AND OUARTEPS

lb. TEC!UlICAL ASSlSTlNCE Ptn:JECTS 122.Q lm lm l.W ill.4

II Ill IV I II Ill IV ll llJ IV I II Ill IV II Ill IV

6. Agricultural Input S~ply Corporation - Pre-feasi-

bility study on the viability of the establislvnent
of PE-PP fertili!er packaging unit in ASSdb

7. Ministry of Agriculture, Ministry of Industry,

Ministry of Mines, and Enerqy, FAO, UHIDO -
Sellinar on fertilizer demand by 2000, optim1.111
l:P:K ratios, optim\11 types and grades of fertilizers,
fertilizer affinity to the local soils and crops

8. Ethiopia-Libya Potash C<v.:1pany - StAnd-by project

related to potash exploration in Dallol in Ethiopia
 - 50 -

3.4 Investment projects

As already discussed, it is difficult to decide on the investment

projects in Gode (A-U aini-fertilizer plant) and in Assab (DAP-TSP versatile
plant) before the most iaportant questions on FER~IS development strategies
are answered. Technical Assistance projects aim at this end.

However, it is believed that it would be worthwhile to present

a tentative comparison of the investment programmes according to Government
strategy and High scenario of this study, as follows:

LOCATIONS GOVERNMENT PROGRAMME MAXIMUM PROGRAMME

Plants Nutrients Investment Plants Nutrients Investment

Assab DAP-TSP 116 100 DAP+TSP 316 200

+ NPK

Gode A+U 23 130

Hetahara A+ U 345 740

Yirga Alem A+U ... 20 410

Hojo A+ U + 249 490

SA + AS

Dallol HOP + SOP 900 700 HOP + SOP 900 700

Total 7 Plants 1,384 1,670 11 Plants 1,585 1,800

Notes: Nutrients (NPKS) expressed in 000 HTPY; Investment in million US$

 - 51 -

Tentative Basic Indicators of analyzed investment programmes

Indicator Government Programme HaxiiaUJa Progra111111e

(High Scenario)

Spe•:ifi c investment in
000 US$ HT of NPKS 1,207 1,136

Average distance to Central FERTIS

Stores and cropping areas 600 k.'D 400 km

Cost of distribution of l HT of fertilizer US$140 US$100

Foreign exchange savings (generating)

from FERTIS CIF (FOB) Assab, without
agricultural exports US$330 million US$410 million

Estimated focxf self-sufficiency ratio

when no acreage expansion assumed,
and FERTIS reliability decreased to
80% of nominal capacity 92% 112%

DES (dietary energy supply) for

assumptions as above (in Kcal-day-capita)
by the year 2000 1,950 2,370

Time base of the whole programme (year),

assuming that civil war is ended by 1991 2000 and beyond 2000 and beyond

Number of programme phases 3 or 4 4 or 5

 - 52 -

P R0 J ECT D0 C UKENT S
 - 53 -

PROJECT OF 11IE GOVERRllEHT OF E'l11IOPIA

Title: Consultancy services of Alllllonia-Urea mini-fertilizer

plant at C.·1de

Number:

Estimated duration: 15 months

Estimated UNDP
contribution: US$400,000

Estimated Government
cost-sharing: US$150,000

Estimated Government
input: 150,000 Birr
 - 54 -

A. DEVELOPMENT PROBLEM TO BE ADDRESSED BY THE PROPOSED PROJECT

1. Development problem at (sub-)sectoral (macro) level

Agriculture is the mainstay of the Ethiopian economy, providing

employment to nearly 851 of the population and accounting for about 901 of the
total foreign exchange earnings. In order to increase agricultural
productivity at the farm level and to fulfil the nation's target of raising
the standard of living of its population there is a need to intensify
cultivation through the increased use of fertilizer.

2. Problem addressed by the project

The formation of state farms and farmers cooperatives, improved

government services in input distribution and credit financing, as well as
agricultural education through extension activities, have increased the
consumption of fertilizers in Ethiopia. Growing demand for fertilizer,
estimated for one million tonnes by th~ year 2000 provided the necessary
foreign exchange funds become available for importation, justifies
consideration for the establishment of a nitro~en fertilizer plant in the
country based on domestic natu.~al gas deposit.

B. CONCERNED PARTI~S AND TARGET BENEFICIARIES

l.Problem identification

A natural gas reserve estimated at about 25 billion cubic meters has been
discovered and is being developed in the Og'lden region of Ethiopia. A number
of small-scale natural gas utilization projects have been identified and the
World Bank has earmarked US$30 million for their implementation. One of the
small scale projects identified but not included in the World Bank funding is
the establishment of a mini-fertilizer ammonia-urea plant. The plant is to be
located at Gode which is about 100 kms away from the natural gas well site and
the gas pipeline has to be built to cover that distance.

2. Target beneficiaries

National Chemical Corporation assumes that the establishment of a

mini-fertilizer nitrogen complex at Gode would encourage the intensive usage
of urea by peasants in the neighbouring regions, thus assuring the increase of
agricultural productivity in one of the least developed region in Ethiopia.
At the same time, consultar.cy services on ammonia-urea mini-fertilizer plant
at Gode would strengthen t!chnical and institutional capabilities of NCC, thus
allowing for the preparation of the Ethiopian specialists tc contractual
negotiations and related investment procedures.

C. PRE-PROJECT AND END-OF-PROJECT STATUS

1. The pre-project situation

Based on a pre-feasibility study, NCC has decided that the implementation

of a world-scale nitrogen fertilizer complex/utilizing natural gas reserves
from Ogader./would require huee investment and long tiine for realization, and
therefore it is necessary to look into alternative !or implementation of a
mini-f~rtilizer plant. NCC has sent Pre-qualification Tender for the
establishment of a mini-fertilizer plant in Ethiopi& to reputable and
 - 55 -

experienced international firms in orde4 to solicit technologi~al and

commercial offers for the supply of a mini-fertilizer plant on a semi-tum key
basis. This Technical Assistance project aims at supplying to NCC consultancy
services on ammonia-urea mini-fertilizer plant at Gode.

2. End-of-project situation

Continuous assistance to NCC, from inquiry and bid evaluation, through

pre-qualification of contractors, preparation of technical appendice~ to the
contract, evaluation of tee~ .Leal docwnents of the contract, up to the
technical assistance of the plant operation after its commissioning and
start-up, would strengthen capabilities of NCC in the realization of a
mini-fertilizer plant project.

Technical Assistance pr~jects includes also component of staff training

in Ethiopia and abroad in management, operation and mainte~ance of
ammonia/urea plants.

D. SPECIAL CONSIDERATIONS

1. Special considerations

Given the foreign exchange constraint for the construction of a

large-scale nitrogen fertilizer complex NCC and the Ministry of Industry is
seeking Suppliers' Credit covering the foreign exchange component of a
mini-fertilizer project. There are, however, potential drawbacks of the
decision to invest into mini-fertilizer plant at Gode. These are:

(a) Demand for nitrogen fertilizers/urea/ in Ethiopia is much higher

than nitrogen production capacity of any mini-fertilizer plant, even
including plans of construction DAP plant in Assab.

(b) Gode is quite a reasonable location ~ r the minimalization of

investment cost/small plant and shor~ gas pipeline/, however, Gode
is located in desert, nomadic region which cannot absorb urea
production even from mini-fertilizer plant and urea would have to be
transpor~ed to cropping areas, thus substantially increasing cost of
fertilizer to the farmer.

T~erefore, in order to reach optimum decisions, UNIDO proposes to

carry-out techno-economic appraisal of the viability of ammonia-urea complex
in the new location in the cropping area. This project is an alternative
scenario to the present Technic.:- !. Assistance project.

2. Potential negative effects

There is no sufficient urea demand in Gode region to justify der,ision on

the establishment of a mini-fertilizer plant in this location on the basis of
the foreign exchange constraint for investment. Landed cost of urea to
farmers in other regions will be high. Throug11 import-substitution of urea
and boosting agricultural output, the planned nitrogen fertilizer complex
should rather be located in cropping region with proper infrastructure, and
the capacity of thP plant should be han.1onized at least to regional demand.
Through optimur·· planning a new project may generate higher ber.afi ts and in the
process save more f~reign exchange than planned mini-fertilizer plant.
 - 56 -

E. RELATED TECHNICAL ASSISTANCE ACTIVITIES

Decision on the location and capacity of the ammonia-urea complex in

Ethiopia is of a key importance for the FERTIS development scenario in this
country. Therefore this Technical Assistance project is directly related to
the most of the other Technical Assistance projects related to FERTIS
development in Ethiopia, and first of all to:

(a) Techno-economic appraisal of the viability of A/U complex located in

the cropping area with the natural gas pipelining to the new
location.

(b) Training services related to DAP/TSP complex in Assab /in particular

as for as the decision on DAP/TSP versatility is concerned/.

(c) Pre-feasibility study on the viability of the establishment of PE/PP

fertilizer packaging unit in Assab.

(d) Seminar on fertilizer demand by the year 2000, optimum N:P:K ratios,
optimum types and grades of fertilizers, fertilizer affinity to the
local soils and crops.

F. DEVELOPMENT OBJECTIVE

The establishment of a mini-fertilizer plant at Gode aims at decreasing

dependency on imported fertilizers through natural gas utilization. The
impact of the project for the national economy would, however, be of limited
importance, as the mini-fertilizer plant could cover only small-scale markets
in Gode neighbouring regions. The establishment of a mini-fertilizer plant at
Gode is justified by close access to the gas fi~· ~. low capital investment
needed, small-scale irrigation project and resettlement programme realized in
this region.

It is believed that alternative scenario with ammonia-urea complex of a

higher capacity and located in the cropping area should also be appraised.

G. MAJOR ELEMENTS

Immediate objective 1

The immediate objective of this Technical Assistance project is to

strengthen NCC in particular at the stage of the preparation of tendering
documents related to a mini-fertilizer project, evaluation of offers,
preparation of technir.al appendices to the contract and pre-qualification of
contractors.

Responsible party
NCC + UNIDO

Output 1.1

Activities 1.1.1

Preparation of tendering documents related to a mini-fertilizer plant and

evaluation of offers, aiming at the optimum techno-economic solutionr. of the
investment projects.
 - 57 -

Activities 1.1.2

Preparation of technical appendices to the contract, suggestions on the

pre-qualification of contractors and technical assistance in contractual
negotiations.

Output 1.2

Activities 1.2.1

Preparation of training programmes for the management, operation and

maintenance of the mini-fertilizer plant.

Activities 1.2.2

Preparation of the technical assistance programme of the mini-fertilizer

plant operation for the period of twelve months after its commissioning and
start-up.

Immediate objective 2

The immediate objective 2 of this Technical Assistance project is to

assess the viability of a small-scale natural gas utilization project into
ammonia-urea production versus other options such as domestic and industrial
fuel, vehicular fuel, electricity generation and others.

H. PROJECT STRATEGY

1. Direct recipients

The Technical Assistance project discussed here would provide the

background for the decisions on the establishment of a mini-fertilizer plant
and for the coordination of further activities of NCC and other Ethiopian
companies involved into contractual ner,otiations, construction of the plant,
staff training and the operation of the ammonia-urea mini-fertilizer plant at
Gode.

2. How will the benefits reach the target beneficiaries?

Urea produced in mini-fertilizer plant would be delivered to peasants and

cotton producers in the area as well as transported to farmers in neighbouring
cropping regions.

Construction of a mini-fertilizer plant at Gode would strengthen the

technical and gene~al infrastructure in the town. Through the construction of
a mini-fertilizer plant NCC and its affiliated companies would acquire
technical experience that could be used in the future in investment, operation
and maintenance of the domestic fertilizer industry.

3. Implementation arrangements

Before implementation of this Technical Assi st:anc<' projc:ct, the economic

viability of the investment into mini-fertilizer plant at Gode should be
carefJlly examined and compared with viability of the investment into larger
ammonia/urea plant located in the croppine area/Alternative Scenario/. This
Technical Assistance project should therefore be consider<'d as a TENTATIVE.
 - 58 -

4. Alternative strategies considered

Ammonia/urea complex of larger capacity, better ~rmonized to the future

nitrogen demand, and located in the cropping area should be considered a~ an
alternative strategy.

Despite the constraining influence of a higher investment cost needed for

a longer natural gas pipeline and for a larger capacity plants, there are
several obvious benefits in such a scenario, and therefore this alternative
strategy should be considered before FINAL Technical Assistance project is
implemented.

I. HOST COUNTRY COMMITMENT

1. Government commitment

Though NCC and the Ministry of Industry have already approved the
strategy of investing into mini-fertiliz~r plant at Gode, it is believed,
however, that the Ethiopian Government should be aware of the Alternative
Scenario to the mini-fertilizer plant project at Gode before any final
decisions are taken.

2. Legal arrangements

Legal arrangements might be necessary with the licensors of ammonia and

urea processes regarding the overall capacities for which the processes are
licensed/the rights for the future capacity expansion at the same or other
locations in Ethiopia/.

J. RISKS

The following are significant risks which could seriously delay or

prevent the achievement by the project of its outputs and objectives.

Estimated likelihood of
occurence (i.e. high,
medium, low)

1. Major risks

The location of a mini-fertilizer plant in Gode

with lack of sufficient demand for urea, hence with the
necessity of bearing high transportation cost of urea
deliveries to neighbouring regions, and too small a
capacity of the plant in the light of future nitrogen
demand in Ethiopia, these are the major risks that should
be seriously considered when analyzing plans for the
construction of a mini-fertilizer plant in Gode region,
characterized also by relatively weak infrastructure.

2. Risks to be monitored

Instead of monitoring risks, alternative scenario to mini-fertilizer

plant project should be considered.
 - 59 -

K. INPUTS

1. Skeleton budget: Provide a sU111111ary estimate of total c•>sts by major

budget category.

National inputs External inputs

(specify currency) (specify currency)

Personnel US$300.000

Sub-contracts
(specify types of goods or services)

Training 150,000 Birr 50,000

Equipment

Miscellaneous 150,000 Birr 50,000

Totals Tentatively 450,000 Birr US$400,000

UN exchange rate: $1.00 - 2.07 Birr

2. Comment on any proposed inputs which may raise policy issues on

which Headquarters guidance is sought.

If the decision on the construction of a mini-fertilizer plant at ~ode is

finally accepted by the Ethiopian Government, it is suggested that the
policies related to the development of Gode region should be given special
attention and priorities.

Person primarily responsible

for this formulation framework: ~~~~~~~~~~~

Signature

Name:
Title:
 - 60 -

PROJECT OF 'DIE GOVERRllEHT OF E'DIIOPIA

Title: Techno-economic appraisal of the viability of

ammonia/urea complex located in the cropping area
with the natural gas pipelining to the new location

Number:

Estimated duration: 3 months

Estimated UNDP
contribution: US$100,000

Estimated Government
cost-~haring:

Estimated Government
input:
 - 61 -

A. DEVELOPMENT PROBLEM TO BE ADDRESSED BY THE PROPOSED PROJECT

1. Development problem at (sub-)sectoral (macro) level

Agriculture is the mainstay of the Ethiopian economy. One of the most

important inputs to agriculture is increased use of fertilizer. Nitrogen
fertilizers are believed to be of the greatest importance for the increase of
agricultural output. There are different recommend3tions for nutrient ratios
in Ethiopia varying from N:P - 1.5 co 1:0.5. FAO recommends ratio N:P - 1:1,
while Institute of Agricultural Research N:P - 1:0.5. At the present time DAP
and Urea/ concentrated fertilizer/ are mostly imported to Ethiopia with the
resulting ratio approximately N:P - 1:1.5.

2. Protlem addressed by the project

As the DAP/18 - 46 - Of and Urea/46 - 0 -0/ are widely used in Ethiopia,

mostly in order to reduce unit transport and distribution cost of fertilizers
delivered to the farm-gate, it is assumed that in the future DAP and Urea will
remain the main sou1ce of nitrogen and phosphate delivered to soils. Taking
into account differ£nces in projertions of fertilizer demand by 2000, that
vary four-fold from 33~.000 KT up to 1,200,000 HT depending on the source of
data and assll!llptions adorted for the scenario in question, as well as
differences in the recomaendations of N:P ratio that vary three-fold from
1:1.5 to 1:0.5, there is no doubt that an optimum scenario for FERTIS
development in Ethiopia should be looked for. One of the 111'.)St important
assumptions in this scenario is the capacity and the location of AmaoniajUrea
complex in Ethiopia.

B. CONCERNED PARTIES AND TARGET BENEFICIARIES

1. Problem identification

Problem has been identified by UNIDO consultant on his field work, in

Ethiopia mcstly through discussions in National Chemical Corporation/NCC/ on
the plans of construction of a mini-fertilizer A/U plant at Gode and
world-scale A/U complex at Hetahara. Taking into account opinions of NCC,
HOA, IAR regarding demand 2000 for nitrogen and phosphate fertilizers and
assumed different N:P ratios, an optimwn solution eme¥ge after the present
Technical Assistance project is executed.

2. Target beneficiaries

The Government of Ethiopia, all org3nizations involved in the development

of the fertilizer industry and agriculture, Ethiopian peasants and the whole
nation would benefit from the allocati0n of valuable and scarce foreign
exchange for the investment in the AmmoniajUrea complex of optimum capacity
and location. Given a foreign exchange burden for imports of fertilizers and
a very strong constraint of foreign exchange availability for investment, the
decision on the construction of A/U com~lex is of key importance for achieving
food self-sufficiency in Ethiopia.
 - 62 -

C. FRE-PROJECT AND EftD-OF-PROJECT STATUS

l. The pre-project: situation

According to NCC plans of fertilizer industry development: in Ethiopia by

2000, three projects are considered:

-a aini-fert:ilizer A/U plant at Gode

-a world-scale A/U complex at Hetahara
-a DAP/TSP versatile complex in Assao

Given the growing demand for fertilizers in Ethiopia and future trends to
use fertilizer with N:P ratio more in favour of nitrogen, the decision on the
construction of a mini-fertilizer A/U plant at Gode, follo~ed hy a world-scale
A/U complex at Ket:ahara seems t:o be not sufficiently justified.

2. End-of-project status

This Technical Assistance project is an alternative scenario for the

Technical Assistance project related to consultancy services on A/U
mini-fertilizer plant at Gode. It is assum~d that after the techno-economic
appraisal on the viability of A/U complex/located in the croppin~ area to
which natural gas would be pipelined/ is executed, the final conclusions on
the capacity and location of the new nitrogen fertilizer complex in
Ethiopia/Gode, Hetahara or the new location/ will be reached.

D. SPECIAL CONSIDERATIONS

1. Special considerations

The capacity of an a1111onia plant in the new A/U complex is directly

related to the assumed demand for fertilizers by 2000 and N:P ratio, and may
vary in the range of 100 TPD up to 1,500 TPD of ammonia. For the fertilizer
demand 680,000 HTPY set by FAQ/assured food self-sufficiency; NP dtmand
389,000 l-ITPY; N:P - 1:1/ the resulting capacity of ammonia to cover only urea
plant capacity would be over 500 TPD. If nutrient ratio is assumed for
N:P ~ 1:0.5 the resulting capacity of ammonia plant would be over 850 TPD.
The strategy of the selection of the capacity of ammonia plant should be
treated as a special consideration in this Technical Assistance project. The
capacity of ammonia plant may be designed alternatively to cover the capacity
of:

(a) Urea plant

(b) Urea plant and OAP plant/import substitution of ammonia/. All the
potential options, including logistics in pipelining or OAP should
be treated as special consideration of this ~echnical Assistance
project. .Ammonia plant may also be built in two phases:

Phase I - Ammonia Line

Phase I I · Ammonia Lin<· I I

 - 63 -

2. Potential negative effects

No negative effects are foreseen in connection to the elaboration of the

discussed techno-econoaic appraisal of the viability of AllllloniajUrea complex
located in the cropping area.

E. REL\TED TECHNICAL ASSISTANCE ACTIVITIES

The two Technical Assistance projects ~onnected with FERTIS development

in Ethiopia are in particular related to this Te~hnical Assistance project.
These are:

-Consultancy Services on A/U Mini-fertilizer Plane at God~.

-Seminar on Fertilizer Demand by 2000, OptilllWB N:P:K Ratios, Optimum

Types and Grades of Fertilizer, Fertilizer Affinity to the Local Soils
and Crops.

F. DEVELOPMENT OBJECTIVE

In contrast to the Ethiopian plans of setting-up a mini-fertilizer A/U

plant at Gode, this Technical Assistance project is an Alternative Scenario in
which development objective is aimed al the s~lection of an optimum location
for A/U complex with the capacity of ammonia plant harmonized to future trends
in fertilizer demand and nutrients ratio in Ethiopia.

The project aims also at defining FERTIS development scenario assuring

the maximum foreign-exchange benefits from its i~plementation.

G. MAJOR ELEMENTS

Immediate objective 1

1.1e immediate objective of this Technical Assistance project is to find

an optimum location and capacity of A/U fertilizer complex in Ethiopia.

Responsible party
UNIDO + FAO + NCC

Output 1.1

Activities 1.1.l

Agree on the fertiliz~r demand in Ethiopia by 2000 and recommended N:P

ratio in order to work-out nitrogen and ammonia balances by 2000.

Activities 1.1.2

Analyze relations between domestic production of fertilizers and imports

and decide on the development scenario for the nitrogen component, taking into
account potential option of import r,ubstitution in ammonia.
 - 64 -

Output 1.2

Activities 1.2.l

Search for the optillWll location of AllDOniajUrea complex in the cropping

area taking into consideration the distance for the pipeline of natural gas
and logistic in urea distribution to marketing centers.

Activities 1.2.2

Decide on the capacities of a1111110nia and urea plants looking into

different technological possibilities and alternative scenarios.

Immediate objective 2

Appraise overall techno-economic viability of the establishment of an A/U

fertilizer comple~ in the new location and compare it with plants of the
establishment of En A/U mini-fertilizer plant at Gode and world-scale A/U
fertilizer complex at Ketahara.

H. PROJECT STRATEGY

1. Direct recipients

The Technical Assi£tance project discussed here would provide the

background for the decisions on the establishment of an AlllllloniajUrea
fertilizer complex in Ethiopia, and for furth~r activities of NCC and other
Ethiopian companies involved into development of the national fertilizer
industry.

2. How will the benefits reach the target beneficiaries?

Urea produced in A/U fertilizer complex at the cropping area will be

distributed directly among the farmers and in the neighbouring regions.

Through the techno-economic appraisal, NCC and cooperating companies

would acquire better understanding of FERTIS and its linkages within the
system.

Once the optimum solution is found and properly justified, it may then be
quickly implemented as it would guarantee the highest foreign exchange savings.

3. Implementation arrangements

The techno-economic appraisal of the viability of A/U complex located in

the cropping area may be prepared within 3 months, 2fter full understanding of
this idea and the cooperation in its implementation are agreed between UNIDO
and the responsible Ethiopian organizations.

4. Alternative str~tegies considered

Th~ establishment of a mini-fertjlizer A/U plant at Gode, according to

the plans of National Chemical Corporation is considered as an alternative
stratey,y for the present Technical Assistance project.
 - 65 -

Though a mini-fertilizer A/U plant at Gode is for sure an option to

minimize investment cost, it is assumed, however, that this option is not an
optimum one because it does not fit to the future nitrogen demand in Ethiopia
and, what is even more important, there is no sufficient market for urea in
Gode region even delivered from a mini-fertilizer plant of small capacity.

I. HOST COUNTRY COMMITMENT

1. Government commitment

Coomitment of the Ethiopian Government is a pre-condition for this

Technical Assistance project to be realized.

2. Legal arrangements

No legal arrangements are necessary at the stage of elaboration of a

techno-econooic appraisal.

J. RISKS

The following are significant risks which could seriously delay or

prevent the achievement by the project of its outputs and objectives.

Estimated likelihood of occurence

(i.e. high, medium, low)

1. Major risks

The lack of commitment of the Ethiopian

Government or the lack of interest from the
NCC side in analyzing other options for the
establishment of A/U fertilizer complex but in
Gode and/or Hetahara, are considered to be major
risks for this Technical Assistance project. Low

2. Risks to be monitored

No risks need to be monitored.

A. DEVELOPMENT TO BE ADDRESSED BY THE PROPOSED PROJECT

1. Development problem at (sub-)sectoral (macro) level

Ethiopia is predominantly an agrarian country with nearly 85% of the

population being engaged in the agricultural sector which is characterized by
low productivity. Food production has to increase significantly in order to
fullfill the nation's targets of achieving self-sufficiency in crop
production. One of the major means of achieving this would be the increased
use of fertilizers being recognized as the major input in the increase of crop
production for domestic use and for export.

2. Problem addressed by the project

The current domestic annual imports of mineral fertilizers has reached a

level rver 150,000 HTPY and demand projection based on a recent
pre-feasibility study ( I·~dustrial Project Service of Ethiopia) indicates that
fertilizer demand is very high and may reach 500,009 HTPY by the year 1995.
By the 2000 demand is estimated to be about 1,000,000 HT of fertilizer
product. This demand is heavily constrained uy foreign exchange aveilability
in Ethiopia.

B. CONCERNED PARTIES AND TARGET BENEFICIARIES

1. Problem identification

The fertilizer demand by 1995-2000 justifies to consider the

establishment of a fertilizer complex in Ethiopia. The major fertilizer
inputs that has been widely practiced within the country were highly
concentrated fertilizers DAP, Urea, TSP and to a lesser extent NPK. If the
country is to import continuously all the fertilLzers it requires, the foreign
exchange requirements would grow tremendously approximately up to
US$300 million CIF per annum. Therefore, it is assumed to establish a
fertilizer complex in Assab to produce DAPJTSP based initially on imported
ammonia, phosphoric acid and phosphate rock to be eventually substituted by
domestic raw materials.

2. Target beneficiaries

It is assumed that the establishment of a fertilizer complex in Assab

will substantially contribute to foreign currency savings for the Ethiopian
~conomy and would contribute to stop the on and off supply of fertilizers for
agriculture. The establishment of the complex in Assab would in particular
encourage the intensive usage of fertilizers by the peasant sector which,
thanks to good extension services in Ethiopia, uses at present nearly 80% of
fertilizers. The domestic production of fertilizers wiil decrease the
farm-gate price of fertilizers and will contribute to consumption growth
through higher incentive of fertiliLer use, as well as the yield of cash-crops
(coffee).

C. PRE-PROJECT AND END-OF-PROJECT STATUS

1. The pre-project situation

A pre-feasibility study has already been conducted by JMPROCHIM of

Romania and JPS of Ethiopia, showing that the project in Assab is technically,
 - 69 -

economically and financially viable. According to the project idea, there is

a need to construct terminals with piers anci unloading facilities for
phosphoric acid, ammonia and phosphate rock brought to Assab by sea-going
vessels. One versatile DAP/fSP plant is to be built of the maximum capacity
240,000 HTPY of DAP or 170,000 HTPY of TSP according to slurry-process. Tllo
storages are envisaged for final products. Both the DAP and TSP product will
be packed in Assab based on imported PE/PP bags (altogether 10 mh PE/DP
bags). In order to get better acquainted in similar complexes, facilities,
management and procurement of inputs to be imported, there is a need to
promote the experience of the key managerial staff connected with the project
by giving them practical training on similar facilities.

2. End-of-project status

After execution of the a.m. managerial in-plant orientation project,

National Chemical Corporation specialists together with specialists
representing Assab Port Authority, would be prepared to proceed with the
preparation of the contract that is to be signed in 1990. Meanwhile,
long-term agreements on supply of phosphoric acid, ammonia and phosphate rock
have to be included. At the same time, NCC specialists would be in a position
to define optimum configuration of the DAP/TSP complex including capacities of
basic and off-sites units as well a~ to define an optimum production programme
for DAP/fSP fertilizers.

D. SPECIAL CONSIDERATIONS

1. Special considerations

Versatile production of the DAP/fSP complex involves careful

consideration of optimum capacity units within the complex. For the TSP
plant, phosphate rock grinding facilities and fluorine absorption/process~ng
units should be envisaged to yield fluorine marketable products. Typical
slurry DAP/TSP process can be used for versatile complex. DAP pipe newest
production process cannot be used. Red.rculation ratio being higher for TSP
production will limit the production capacity as compared to DAP. Liquid
storage for phosphoric acid should be equipped with sludge
drainage/utilization system. Ammonia atmospheric storage should be designed
as a cold storage for -33 grade C with special precautions (poisonous gas).
Fuel oil should be taken from the Assab Refinery to generate heat and
electricity in fertilizer complex. Well water should be developed in the
Assab area as there is a shortage of this type of water.

2. Potential negative effects

Environmental pollution from:

-potential ammonia leakages

-fluorine eff-gascs from TSP plant
-phosphate rock dust

E. RELATED TECHNICAL ASSISTANCE ACTIVITIES

1. Training of Assab fertilizer eniineers is recommended to be carried

in the Assab Oil Refinery.
 - 70 -

2. The University of Addis Ababa and NCC specialists as well as the

Research Department should look for the optilllUlll possibilities of the
utilization of fluorine gases to Na2SiF6 or other fluorine compounds.

3. Research should be conducted on utilization of sludges from

phosphoric acid.

F. DEVELOPMENT OBJECTIVE

Immediate objective 1

The immediate objective of the project will be the strengthening of NCC

and related organizations in order to prepare them for the contractual
negotiations related to fertilizer complex in Assab, through institutional
building.

Responsible party: NCC

Output 1.1

Activities 1.1.1

Specific rPcommendations will be prepared as far as the DAP/TSP optimum

technical configuration of versatile plant is concerned. Detailed report will
be prepared after the project is executed.

Activities 1.1.2

Techno-economic analysis will be carried out in order to define the

Ethiopian capability and contribution in the design and selecting optimum
technological options and additional technological units.

Output 1.2

Activities 1.2.l

Long-term preliminary agreement and "letters of intent" on phosphoric

acid trade and delivery conditions to Ethiopia will be negotiated including
payment conditions and ne~essary technical arrangements (Morocco-tentatively).

Activities 1.2.2

As above for ammonia long-term trade, barter possibilities and

payment/pricing conditions (USSR, Persian Gulf Producers-tentatively).

Activities 1.2.3

As above - phosphate rock - trade agreement/barter/price (Jordan).

Jmmediate objective 2

Specialists from Assab/Ethiopi.an Port Authority will get acquaint~d with

all the main technical conditions and standards relating to handling, storing,
unloading of cheminal commodities not known in Ethiopia ~t present.
 - 71 -

A separate report should be prepared as far as

adaption/expansi~n/modernization of port facilities, piers, berths, etc. are
concerned.

H. PROJECT STRATEGY

1. Direct recipients

The Technical Assistance Project discussed here would pr~vide the

background for the coordination of further activities among other Ethiopian
companies involved into contractual negotiations, construction of the complex,
its start-up and safety operation. Assab Port Authority will closely
co-operate in all the stages of the establishment of the fertilizer project in
Assab.

2. How will the benefits ceach the target beneficiaries?

The availability of domestic supply of fertilizers will benefit in

foreign exchange savings for the national economy. At the same time farmers
will be able to purchase domestic fertilizers at a lower price. Construction
of domestic fertilizer industry in Assab shall create job opportunities and
strengthen t~chni~al and professional capabilities of NCI and cooperating
organizations.

3. Implementation arrangements

Before impleme~tation of this technical assistance project, which should

be con~idered as 2 TENTATIVE, the economic viability of Assab DAP/T$P
versatile plant p~ojP.ct should be carefully examined. This Technical
Assistance Project should be executed a~ soon as the economic efficiency of
Assab complex has been proven.

4. Alternative strategies considered

Complex Feasibility Study on Fertilizer Production in Ethiopia can be

considered as an alternative strategy in which the optimum capacity of the
Assab plant with recommended DAP or TSP product only (and not versat1le
DAP/TSP plant) together with the optimum capacity of Ammonia/Urea Plant should
be designed for Ethiopia, taking into account NPK demand 2000, N:P:K ratio and
types of fertilizers to be used in the future.
 - 72 -

K. INPUTS

1. Skeleton budget: Provide a summary estimate of total costs by major

budget category.

National inputs External inputs

Personnel 18,000 Birr US$30,000

Sub-contracts 12,000 Birr 20,000

(spc~ify types of goods or services)

Training 20,000 Birr 25,000

Equipment 4,000 Birr 2,000

Miscellaneous 30,000 Birr 3,000

Totals 84,000 Birr US~80 1 000

L'N exchange rate: $1.00 = 2.07 Birr

2. Comment on any proposed inputs which may raise policy issues on

which Headquarters guidance is sought.

Person primarily responsible

for this formulation framework:
Signature

Name:
Title:
 - 73 -

PROJECT OF 1llE GOVERNMENT OF E111IOPIA

Title: Fertilizer raw materials exploration and

evaluation

Number: Duration 3 years

Project site: Ethiopia

Sector: Mining industry

Subsector: Fertilizer raw materidi~

Host country:
Implementing Agency: Ethiopia Institute of Geological Survey

Executing agency: UNIDO or UNDP

Estimated starting date: 1990

Gcvernment inputs: 2, 577, 960 Birr

Brief description: The Ethiopian Economy, being mainly agricultural, depends

on imported fertilizer and other chemicals, which demands hard currency. In
the past few years EIGS has carried out systematic investigations on potential
areas for phosphorite and apatite minerals. Studies were conducted based on
recommendations by R.P. Sheldon (1984), and V.N. Serguenks (1984), which
included the following priority areas and geological formations;

-Phosphorite Auradu series in the Ogaden

-Igneous apatite Gabbro-anorthorite, biotite pyroxmte; carboratite,

syenite

-Metamorphic Metamorphic sediment~ (i.e. strometaties and

associated sedimens, skarus)

-Bioginic guano (bore beds, bat guaro)

-Residual weathered roles of various types where apatite is

enriched

Results obtained so far proved the existence of phosphorite bearing rocks

in the Ogaden and apatite associated with magnetite and ilmenite
mineralization in Wellga and Bale Administrative regions.

l. To manufacture phosphate fertilizer from phoSF·hate rock sulphuric

acid is an important component. Sulphuric acid can be prepared from
sulphur and/or sulphide minerals such as pyrite. In Ethiopia there
arc a number of occurrences of sulphur and pyrite but none have been
studic,d in detail. To :msure a continuous supply of sulphuric acid
to the fertilizer plant the domestic source of sulphur should be
 - 74 -

evaluated carefully. In this respect the known occurrences and

other sources will have to be studied.

2. Of the various factors that affect soil fertility, soil PH is one

that can be controlled by the addition of calcium materials such as
limestone. This process is commonly known as liming. It requires
abundant source of limestone and/or dolomite within a range of and
acceptable distance. The source of liming materials and areas of
high priority will be assessed and field trials will also be carried
out to study its effectiveness.

A. CONTEXT

Soils in Ethiopia are known to be deficient mainly in phosphorous and

nitrogen. Hence, the continued supply of sulphur for phosphate fertilizer
manufacture, and limestone and dolomite for liming are necessary materials to
reduce the acidity of soils.

B. PROJECT JUSTIFICATION

1. Problem to be addressed

At present all fertilizer requirements of the country are met by import.

There is grave shortage of food and other agricultural products. The decline
in this sector of the economy is believed to have been contributed due to
general factors of which one is the depletion of the soil fertility. Absence
of domestic supply of fertilizer is another factor that severe limitations on
the performance of the agricultural sector as a whole.

There is at the moment, a plan to construct a phosphate fertilizer plant

which will operate using imported raw materials. To date there is only one
possible deposit of low grade depont (apatite) studied to a reasonable
detail. In order to establish an economically viable fertilizer industry,
more exploration on other potential areas should be conducted.

2. Expected end-of-project situation

The selected target areas and others which will' be discovered in due
course will be explored in detail and information concerning mineralogy,
texture, structure of deposit, reserves, and relevant data which enables to
decide on its utilization will be studied. Thus selected deposits will be
mined, upgraded and used in place of imported raw material. Liming trials and
identification of resources is believed to minimize acidity problems.

3. Target beneficiarie5

The availability of domestic supply of fertilizer will benefit the

national economy, in addition to the farmers who will be able to buy at a
lower cost. The contribution in terms of the job opportunities and
professional training is also important.

4. Project strategy and institutional arrangements

 - 75 -

The project will be executed in close association between EIGS and UNIDO
and will contact other Professionals/Org-3.nizations concerned with various
aspects of fertilizer raw materials, i.e. phosphatic.

5. Reasons for assistance from UN agencies

Transfer of know how, organisation of supplies, financial resources, and

training of professionals are the tasks that the UN agencies are expected to
contribute. Following the successful training, exploration, and evaluation on
implementation of results, the national capability is believed to be promoted
to undertake such activities on their own.

6. Special consideration

It is important to note that the transfer cf know how, including

training, are practical and effecti •;e.

7. Co-ordination arrangements

The EIGS Project Manager will repoLt directly to the UNIDO representative
through the intermediary of UNDP in Addis Ababa and the General Manager of
EIGS. No further co-ordination is necessary.

8. Counterpart support capacit_y

The Government should provide a project counterpart, preferably a well

experienced geologist in phosphate exploration.

C. DEVELOPMENT OBJECTIVES

The main development objective is to utilize the deposit thus studied and
evaluated to substitute for imported phosphate rock for the fertilizer plant
being considered soon.

D. IMMEDIATE OBJECTIVES OUTPUTS AND ACTIVITIES

1. Immediate objectives and a~tivi~ies

-Prospecting for igneous and sedimentary phosphate in Sidamo,

Wellega, Bale, East Hararge Administrative regions and Ogaden
Autonomus region at a scale 9 1:250000

-Geological mapping on 300 km2 at a scale of 1:10000

-Core drilling of 4000 linear meters

-Chemical analyses of 2000 samples

-Characterization of phosphate ore-10 bulk samples

-Training of Ethiopian project personnel

2. Immediate objective 2

-Evaluation of the phosphate potential and complete pre-feasibility

 - 76 -

studies on selected rieposits.

-Mining planning and design

-Studying alternative uses for resources evaluated

3. Immediate objective 3

-Utilization of the domestic raw material in fertilizer manufacture

4. Immediate objective 4

-Survey of micronutrients in Ethiopia, such as: Zn, Bo, Hn, Fe, Co,
Ho, Cu

E. INPUTS

(a) Ethiopian Government

-Project coordinator -36 man/month Birr 54,000

-Geologists -360 man/month 255,000
-Drivers -180 .. " 63,000
-Drilling crew -288 n 207,000
-Casual labour 90,000
-Camping equipment -12 sets 48,000
-Vehicle -4 toyotas 200,000
-Project running cost
fuel & lubricants
maintenance 700,000

-Insurance 260,000
-Tax 500,000
-Chemical analysis 200,000

Tot<il 2.577 ,960

(b) UN Agencies

-Consultant 36 man/months Birr 200,000

-Lab. equipmerat
and consumables 300,000
-Drilling accessories 1,000,000
-Vehicle 4 toyotas 200,000
-Truck 1 200,000
-Spares " 150,000
-Training (Misc.) 24-48 m/m " 160,000

Total 2,010,000
 - 77 -

Figure: Target areas for phosphate and sulphur exploration

 - 78 -

Figure: Ha.p
 - 79 -

Figure: Kap
 - 80 -

PROJECT OF THE GOVEUlllENT OF E'11110PIA

Title: The package of traini~ programmes in distribution of

fertilizers to strengthen managerial and operational
capability of AISCO

Number:

Estimated Duration: 12 months

Proposed sources of
funds: RB

Estimated UNDP
contribution: US$300,000

Estimated Government
cost-sharing: US$50,000

Estimated Government
input: 100,000 Birr
 - 81 -

A. DEVELOPMENT PROBLEM TO BE ADDRES~ED BY THE PROPOSED PROJECT

1. Development problem at (sub-)sectoral (macro) level

Agriculture is the mainstay of the Ethiopian economy. Fertilizers are

recognized to be the :d<>St important Lnput to agricultural production increase
for domestic use and for export. At the present time Ethiopia imports about
150.000 Hf of fertilizers per annum, mostly DAP and Urea. The only
company/parastatal/ involved in the whole chain of imports, handling,
transport, distribution and marketing of fertilizers in Ethiopia is AISCO
(Agricultural Input Supply Corporation).

2. Problem addressed by the project

Imports of fertilizers in Ethiopia is a substantial burden to the

domestic economy. therefore the efficient use of both the financial means to
buy fertilizers at reasonable prices and their proper distribution to minimize
the overall cost of this input, is of great importance to agricultural output
increase in Ethiopia, all the more s~ that the demand for fertilizers by 2000
is characterized by substantial growth rate.

B. CONCERNED PARTIES AND TARGET BENEFICIARIES

1. Problem identification

In order to strengthen managerial and operational capability of AISCO,

there is a need to organize training programmes for its management, regional
agents and operational staff in:

-procurement, contracting and trading imported fertilizers (3 persons)

-logistic storage, transport and uistribution of fertilizers (30 persons)

-operation and maintenance of mobile fertilizer bagging units (3 persons)

Training programmes shall be organized in Ethiopia and abroad.

2. Target beneficiaries

The preparation and organization of training programmes for 36 AISCO

employees will contribute to:

-foreign exchange savings for the Ethiopian economy through impro'lement

of procurement and contracting of fertilizers at more competitive prices.

-more efficient handling, distribution and use of fertilizers delivered

to farmers in proper qualities and at the proper time.

-proper utilization of the 3 mobile fertilizer bagging units (to be

purchased from the World Bank funds) in order to decrease port handling
costs and fertilizer losses, improve handling flexibility in fertilizer
warehouses during peak loads or during breakdowns for fertilizer to be
re-packed.
 - 82 -

C. PRE-PROJECT AND END-OF-PROJECT STATUS

l. The pre-project situation

At the present time AISCO is totally responsible for purcha~ing, handling

distribution and marketing of all fertilizers imported to Ethiopia at the cost
of about US$50 million per annum. Growing demand for fertilizers will result
in year-by-year increased cost of imported fertilizers, before domestic
fertilizer industry is built. This implies the necessity of strengthening
managerial and operational capability of AISCO in order to reduce the
fertilizer farm-gate price, all the more so that the unit cost of fertilizer
transport and distribution from the port in Assab to the farmer's gate is as
high as US$150/ton.

2. End-of-project status

The package of training programmes for AISCO will contribute to the

institutional strengthening of this corporation. After project execution
AISCO will be better prepared to competitive procurement and ccntracting of
imported fertilizers, will gain additional knowledge of the fertilizer
distribution system and its logistics in Ethiopia. This, in turn, will
contribute to fertilizer consumption growth and to more efficient fertilizer
use.

D. SPECIAL CONSIDERATIONS

1. Special considerations

Special attention should be given to arrangements related to training

programmes organized abroad in order to assure that all AISCO
specialist/agents trained abroad shall return afterwards to their duties in
AISCO in Ethiopia. Egypt and lrdia are considered to be the countries
properly exprienced to organize tra1n1ng programmes for Ethiopian
specialists/fertilizer distribution agents.

( 2. Potential negative effects

No negative ·ffects are expected apart from potential ~osses of funds

used for trainees not returning to their duties with AISCO.

E. RELATED TECHNICAL ASSISTANCE ACTIVITIES

Pre-feasibility study on the viability of the establishment of PE/PP

fertilizer packing unit in Assab. This project should indicate whether
purchasing of fertilizers in bulk to be subsequently packed in Assab is an
attractive option. If it were the case, the accent should be put in AISCO
training programmes on procurement, handling, storing and packing fertilizers
in bulk.

F. DEVELOPMENT OBJECTIVE

Through its training programmes, project aims at tr~ development cf major

components relating to storage, transport, distribution, consumption, rl~mand
and policies in Fertilizer Industrial System in Ethiopia.
 - 83 -

G. MAJOR ELEMENTS

Immediate objP.ctive 1

The immediate objective of the project will be strengthening of AISCO in

order to prepare its managements and regional agents/mobile packing
specialists to cope with increased amount of fertilizer to be purchased and
distributed at the farm-gate level.

Responsible party: AlSCOjUNIDO

Output 1.1

Activities 1.1.1

Training objectives and training schedule for each of the programmes will
be prepared by AISCO together with specific conditions celating to training
abroad.

Activities 1.1.2

UNIDO, cooperating with AISCO shall negotiate the possibilities and

conditions of training abroad in the countries selected for the execution of
the project (Egypt and India - tentatively)

Output 1.2

Activities 1.2.1

Detailed reports will be prepared by AISCO, after each of the training

components is executed, indicating benefits and experience derived from the
training programmes.

H. PROJECT STRATEGY

1. Direct recipients

The package of training programmes would strengthen managerial and

operational capabilities of AISCO at the level of its headquarter in Addis
Ababa and at the regional level /AISCO agents/specialists at
Selling/Distribution Centres and Service Cooperatives/.

2. How will the benefits reach the target beneficiaries?

Through increased knowledge of AISCO managers/agents/specialists, the

whole chain of operations beginning with imports/product~.on/ of fertilizers
till their application at the peasant level. At the present time bagged
fertilizers imported through port in Assab are directed to warehouses in
Nazarett and Addis Ababa from where they are sent to 750 Selling Distribution
Centers linked with 4,000 Service Cooperatives supplying fertilizers to about
7 million of peasants.

3. Implementation arrangements

Specif~c training objectives, training schedules and lists of

participants ir, each of the training programmes should be prepared by AISCO
 - 84 -

and approved by Ministry of Agriculture before they arc sent to UNDP in Addis
Ababa. UNIDO-viennafUNDP Addis Ababa should initiate arrangements on training
programaes in Ethiopia and abroad.

4. Alternative strategies considered

The execution of the whole training programme package Pntirely in

Ethiopia may also be considered by means of sending to AISCO trainers highly
specialised in procurement, contracting, marketing and logistics in fertilizer
distribution. It is recognized, however, that the optimum training programmes
should include not only training in Ethiopia but also training abroad. AISCO
should justify proposed split of training programmes for local and foreign
components.

I. HOST COUNTRY COMMITMENT

1. Government commitment

Any UNIDO action relating to the package of the above mentioned training
programmes for AISCO, should be preceded by the commitment of the Ethiopian
Government.

2. Legal arrangements

Legal arrangements may be necessary with countries/tentatively Egypt,

India/ organizing training programmes for the Ethiopian staff_

H. RISKS

The following are significant risks which could seriously delay or

prevent the a~hievement by the project of its outputs and objectives.

Estimated likelihood of occurence

(high, merlium. low)

1. Major risks

Emigration of trainees from Ethiopia

through host training country, or their not
returning to their duties in AISCO after being
trained abroad. Medium

2. Risks to be monitored

Number of the Ethiopian trainees sent abroad and number of trair;ees

returning to their duties in AISCO.
 - 85 -

K. INPUTS

1. Skeleton budget: Provide a su111111ary estimate of total costs by major

budget category.

National inputs External inputs

(specify currency) (US dollars)

Personnel 100,000 Birr

Sub-contracts
(specify types of goods or servi~es)

1raining 50,000 Birr US$300,000

Equipment

Miscellaneous

Totals Indicatively 200,000 Birr US$300,000

UN exchange rate: $1.00 - 2.07 Birr

2. Comment on any proposed inputs which may r<lise ;>olicy iss-..ies on

which Headquarters guidance is sought.

No comments.

Person primarily responsible

for thi~ formulation framework:
Signature

Name:
Ti.tle:
 - 86 -

PROJEL OF THE GOVERNKF.NT OF EllllOPIA

Title: Pre-feasibility study on the viability of the

establishment of PE/PP fertilizer packaging unit

Number:

Estimated duration: 3 months

Proposed sources of
funds:

Estimated liNDP
contribution: US$50,000

Estimated Government
cost-sharing:

Estimated Government
input: 50,000 Birr

/
 - 87 -

A. DEVELOPMENT PROBLEM TO BE ADDRESSED BY THE PROPOSED PROJECT

1. Development problem at (sub-)sectoral (macro) level

Fertilizers are one of the most valuable, but also most costly input to
the Ethiopian agricultural sector/approximately US$50 million per year/. All
the fertilizers consumed in Ethiopia ar~ imported in PE/PP bags. Unit price
of bagged DAP and Urea - /the fertilizers predominantly imported in
Ethiopia/-is substantially higher than that of fertilizers in bulk. One of
the possible option to decrease foreign exchange burden would be the
importation of fertilizers in bulk and packing them in Assab in domestically
manufactured PE/PP bags.

2. Problem addressed by the project

Present consumpcion of fertilizers close to 200,000 MTPY and increasing

demand for fertilizers estimated for at least 600,000 MT by 2000 is heavily
constrained by foreign exchange availability in Ethiopia. With growing
imports of fertilizers through port in Assab/or even with planned own OAP/TSP
production in Assab/ there is a need to prepare pre-feasibility study in order
to analyze the viability of the establishmenc of PE/PP fertilizer packaging
unit in Assab. Manufacturing of PE/PP bags in Assab would have to be based on
imported polyethylene and polypropylene.

B. CONCERNED PARTIES AND TARGET BE~EFICIARIES

1. Problem identification

The problem has been identified by AISCO (Agricultural Input Supply

Corporation) responsible for imports of fertilizers in Ethiopia, and addressed
to UNIDO ccasultant.

Assuming high fertilizer consumption increase /about 18-20% per annum/

and futare fertilizer demand AISCO believes that the development of packaging
industry in Ethiopia would be justified technically and economically.

2. Target beneficiaries

Ethiopian peasants would be ultimate target_ beneficiaries of the

project. All net savings between imports of fertilizers in bags and bulk
(cost of manufacturing PE/PP bags included) would be transferred to the
peasants after the reduction of fertilizer selling price. This would
stimulate further fertilizer consumption growth through higher incentive of
fertilizer use.

C. PRE-PROJECT AND END-OF-PROJECT STATUS

1. The pre-project situation

About 200,000 MTPY of fertilizers are imported in PE/PP bags at the

present time. This equals to the importation of about 4 million double
layered PE/PP bags. When fertilizer demand 2000 is taken into considcrat~on,
as much as about 1/. mil lion of PE/PP bags would have to be i mportcd, f!VCn
assuming local production of fertilizer fer which PE/PP bap,s ar<- necessary as
 - 88 -

well. Such an amount of imported PE/PP bags justifies elaboration cf the

pre-feasibility study on the viability of establishment of PE/PP fertilizer
packaging unit.

2. End-of-project status

After establishment of the domestic PE/PP manufacturing unit at Assab,

two different options are possible:

(a) all fertilizers are still imported and the capacity of PE/PP
manufacttring unit would be about 12 million bags to meet NPK demand
2000.

(b) A domestic fertilizer industry is to be built in near future,

implying the analysis of optimum PE/PP bags manufacturing units
either in Assab where DAP/TSP plant is expected to be built or in
Assab and another location selected for the domestic nitrogen
fertilizer complex (Ammonia/Urea). Optimum solutions should be
aimed at, dependin~ on FERTIS development scenarios.

D. SPECIAL CONSIDERATIONS

1. Special considerations

There are several special considerations related to the project, namely:

(a) NCC - planning the construction of DAP/TSP plant in Assab does not
intend to invest into PE/PP bags manufacturing facilities, assuming
that all bags would be delivered from imports. This strategy will,
most probably, be maintained when construction of ammonia/urea
complex is considered. Therefore, NCC approach is quite different
from that of AISCO, and at least preliminary agreement on basic
ideas should be reached before pre-feasibility study is launched.

(b) Ethiopia does not produce polyethylene or polypropylene. Refinery

in Assab is too small to derive from it any of olefins for the production of
polymers: PE and PP. Thus, all polymers (PE + PP) for the manufacturing of PE
and PP bags would have to be imported.

2. Potential negative effects

No potential negative effects of the preparation of the analyzed

pre-feasibility study are expected.

E. RELATED TECHNICAL ASSISTANCE ACTIVITIES

The five technical assistance projects are directly related to the

present project and may influence its final targets. These are:

(a) Techno-economic appraisal of the viability of ammonia-urea plant,

(b) Training services related to OAP/TSP complex in Assab,

(c) The package of training programmes to strengthen AISCC manar,cmcnt,

 - 89 -

(d) Seminar on fertilizer demand by 2000 and optimum types of

fertilizers,

(e) Stand-by project related to potash exploration in Dallol/depending

on whether at least part of output from the potassium salts mine is
to be packed in PE/PP bags for export deliveries,

See List of Technical Assistance Projects Documents for FERTIS in

Ethiopia.

F. DEVELOPMENT OBJECTIVE

Taking into account fertilizer demand by 2000, it is assumed that the

construction of facilities for the manufacturing of 12 million inner PE bags
and 12 million outer PP bags should be considered. Approximate demand for raw
materials-polymers to be imported to Ethiopia would be about 1,200 tons of
high density polyethylene HDPE and about 1,200 tons of polypropylene per annum.

If the construction of the facilities for the manufacturing of PE/PP bags

based on imported polymers will prove to be economically viable, there is a
roo~ for investment project in order to save foreign exchange Ethiopia spends
at present for the importati~n of PE/PP bags manufactured elsewhere. The
price difference in between bulk/bagged fertilizers are expected to bring the
highest foreign exchange savings.

G. MAJOR ELEMENTS

Immediate objective 1

The immediate objective of the project would be to analyze the viability

of the manufacturing PE/PP bags on the basis of imported polymers.

Responsible party: AISCO + NCC + UNIDO

Output 1.1

Ac ti vi ties 1.1.1

Pre-feasibility r~port study on the viability of the manufacturing of 12

million PE/PP bags in Assab will be prepared.

Activities 1.1.2

Techno-economic analysis will parallely be carried-out on the

coordination of engineering activities for DAP/TSP facilities/ fertilizer
stores in Assab with the planned investment for the manufacturing of PE/PP
bags.

Output 1..2

Activities 1.?.l

Alternative options of the construction of the facilities producing only

PE or sizal or jute bags will be analy~cd.
 - 90 -

Activities 1.2.2

Coordination between all potential options regarding fertiliz~r

importation/domestic production and manufacturing of different types of bags
/PE/PP; PE; sizal; jute/ would have to be assured including the preparation of
an overall complex schedule for these activities.

Immediate objective 2

The immediate objective 2 of the project would be to select an optimum

locations and capacities of the facilities manufacturing bags, taking into
account 0 among other factors - such as: capacities of DAP/TSP complex in
Assab, Ammonia/Urea complex and potential supplementary import of fertilizers.

~- PROJECT STRATEGY

1. Direct recipients

The Technical Assistance Project discussed here would provide the

background for the coordination of activities among AISCO, NCC and other
companies involved in the chain of importing, producing, packing, transporting
and distributing fertilizers.

2. How will the benefits reach the target beneficiaries?

Availability ~f domestic supply of PE/PP; PE; sizal; jute bags will

benefit in foreign exchange savings for the national economy. At the same
time farmers will be able to purchase fertilizers at a lower price. Packaging
industry development will create job opportunities and allow to give AISCO
more freedom and flexibility in purchasing fertilizers in bulk.

3. Implementation arrangements

In order to prepare a sound pre-feasibility study, a very careful

analysis and comparison of prices between ready-made bags and raw materials to
manufacture bags, as well as OAP/TSP/Urea price£ in bulk and bagged should be
carried-out.

4. Alternative strategies considered

Alternative strategy to be considered, but only for Assab, i~ to analyze

imports of fertilizer in bulk, separate imports of bags and packing fertilizer
in Assab port/fertilizer terminal, utilizing Ethiopian labour force and
fertilizer parkaging facilities.

It is believed, however, that the reasonable and complex programme of

manufacturing bags (using imported and domestic raw materials) and packaging
fertilizers in Ethiopia is a more justified option than imports of bagged
fertilizers.

I. HOST COUNTRY COMMITMENT

1.. 9-_~ent commi tm<mt

 - 91 -

It would for sure be worthwhile to have agreed basic idea of this project
between AISCO and NCC before Ministry of Agriculture and Ministry of Industry
shall support the project.

2. Legal arrangements

The responsibility and competence of AISCO and NCC in the preparation and
implementation of this project should be determined before pre-feasi~ility
study is launched.

J. RISKS

The following are significant risks which could seriously delay or

prevent the achievement by the project of its outputs and objectives.

Estimated likelihood of occurence

(high, medium, low)

1. Ma j··>r risk

The potential lack of the proper coordination of actions in this project

between AISCO ~nd NCC is the major risk, however, likelihood of its occurence
is low.

2. Risks to be monitored

No risks need to be monitored.

K. INPUTS

l. Skeleton budget: Provide a summary estimate of total costs by major

budget category.

National inputs External inputs

(specify currency) (US Dollars)

Personnel

Sub-contracts
(specify types of goods or services)

Training

Equipment

Miscellaneous

Totals Indicatively 50,000 Birr

WWW
US$50,000

UN exchanBe rate: $1 .00 - 2.07 Birr

7.. Comment on anv proposed inputs which may raise policy issues on
which Headquarters r,uidancc is sought.
 - 92 -

Pricing policy related to domestic raw materials to manufacture bags and

long-tena agreeaents on the profitable purchasing of PE/PP polymers are
rec09llended to be prel~minarily arranged with potential suppliers.

Person primarily responsible

for this formulation framework:
Signature

Name:
Title:
 - 93 -

PROJECT OF 'DIE GOVERl!lllENT OF E'l1110PIA

Title: Seminar on fertilizer demand by 2000, optimum N:P:K

ratios and fertilizer types, fertilizer affinity to
the local soils and crops

Number:

Estimated duration: 2 months

Proposed source(s) of
funds: UNIDO/FAO

Estimated UNDP
contribution: US$50,000

Estimated Government
cost-sharing: US$10,000

EstilDdted Government
input: 60,000 Birr

•
 - 94 -

A. DEVELOPMENT PROBLEM TO BE ADDRESSED BY 11IE PROPOSED PROJECT

1. Development problem at (sub-)sectoral (macro) level

Ethiopia, with a per capita GNP in 1986 of US$120, is one of the poorest
countries in the world. The almost total reliance on agricultural exports,
accounting for over 901 of foreign exchange earnings, imposes to increase the
agricultural productivity by appropriate technological change and increased
efficiency and use of inputs such as fertilizer, improved crops varieties as
well as some acreage expansion. The rapid growth of agricultural exports is
critical to financing essential capital goods for development.

2. Problem addressed by the project

The Ethiopian Government is to decide on investment programme in the

domestic fertilizer industry by the year 2000. The creation of the national
fertilizer industry is a pre-condition to increase the agricultural exports
and to save valuable foreign exchange used for imports of fertilizers. Both
demand for fertilizers and investment in the fertilizer subsector are heavily
constrained by decisions in the long-term programme of development of the
country. This Technical Assistance project aims therefore at organizing a
seminar in orde~ to define and specify more precisely the future objectives
and targets in FERTIS development in E~~;opia.

B. CONCERNED PARTIES AND TARGET BENEFICIARIES

1. Problem identification

The fertilizer consWDpt~on growth and the fertilizer. demand 2000 justify
to create domestic fertilizer industry in Ethiopia. There are, however, too
large differences in opinions among the organizations responsible for setting
development targets on fertilizer demand, optimWD nutrients ratio and types of
fertilizers needed in Ethiopia, to justify at the present time any concrete
investment actions to he undertaken, before the most important questions
relating to the strategy of FER7IS development in Ethiopia are cleared up at
the planned seminar and agreed among the organizations involved in this
development process.

2. Target beneficiaries

Ethiopia, with its weak economy and civil conflict in the country,
draining valuable foreign exchange from agricultural exports, cannot afforJ
for taking any investment decisions in the development of the domestic
fertilizer industry but optimum ones. Therefore, the whole nation will
benefit from the conclusions worked-out at the planned seminar. The sooner
the seminar is organi~ed, the quicker the coordinatio~ of objectives in
fertilizer demand, capacities needed in the domestic fertilizer industry and
actions connected ~ith the exploration of domestic raw materials related to
FERTIS. National Chemical Corporation, Ministry of Industry, Ministry of
Agriculture, AISCO, Ministry of Energy and Mines and others will benefit from
the planned seminar.
 - 95 -

C. PRE-PROJECT AND END-OF-PROJECT STATUS

1. The pre-project situation

lt appeared, during field work of UNIDO consu~~ant on FERTIS strategy in

Africa, that differences in setting the principal objectives for development
of FERTIS in Ethiopia are substantial and too big to be accepted if UNIDO is
to enter into any Technical Assistance/Investment Projects related to FERTIS.
Demand for fertilizers by 2000, derived from different da~a and scenarios
available, varies in the range of 330,000 HT up to 1,400,000 HT, while N:P
ratio varies from about 1:1.5 to 1:0.5 depending on the source of data (NCC,
FAO, AISCO, HOA, IAR), this indicating the necessity of agreement and
coordination of targets before investment decision are undertaken.

2. End-of-project status

It is assumed that after the planned seminar all the major issues and
questions related to F~TIS development in Ethiopia will be answered, in
particular as far as problem identification and objectives related to
agriculture (fertilizer demand, nutrient ratios, fertilizer types) are
concerned. It is assumed that the seminar would also lay-down the frame for
the strategies relating to FERTIS development in Ethiopia, such as: optimum
location and capacities of fertilizer plants and complexes, logistics and
infrastructure and phase-wise schedule of investment actions in order to gain
the highest efficiency and financial viability of the overall programme.

D. SPECIAL CONSIDERATIONS

1. Special considerations

It is important that in th~ planned seminar should take part

representatives of all the organizations involved in the ~·!hole chain of
activities related to FERTIS development in Ethiopia: Agricultural Input
Supply Corporation (AISCO), Ministry of Agriculture (M~A), Ministry of Coffee
and Tea (MCT), Ministry of State Farm Development (MSFv), Institute of
Agricultural Research (IAR), FAO, National Chemical Corporation (NCC),
Ministry of Industry (MOI), Ethiopian Institute of Geological Surveys (EIGS),
Ministry of Energy and Mines (MOEM), Ministry of Transport and Communication
(HTC), Agro-industrial Development Bank (ADB), and others - according to the
suggestions of the Government of Ethiopia and UNDP in Addis Ababa. It is
suggested that a joint FAO/UNIDO seminar opening paper should be prepared and
agreed with the Ethiopian Government before the seminar.

2. Potential negative effects

No potential negative effects are expected from organizing coordinative

seminar on FERTIS development in Ethiopia.

E. RELATED TECHNICAL ASSISTANCE ACTIVITIES

All Technical Assistance projects discussed in the package of UNIDO

actions connected with FERTIS development in Ethiopia are, to different
extent, related to this Technical Assistance project. Technical Assistance
projects connected with th<': construction of Ammonia/Urea mini-fertilizer plant
 - 96 -

and/or nitrogen fertilizer complex, as well as project connected with the

DAP/TSP complex in Assab seem to be the most important to the present
Technical Assistance project, as the seminar may bring together opinions of
decision-makers from the Ethiopian Government and in the process speed up
FERTIS development programme.

F. DEVELOPMENT OBJECTIVE

The aim of the Technical Assist~nce project is to organize a seminar in

order to define and specify more precisely the future objectives and targets
in FERTIS development so as to reach full agreement and coordination of
objectives in fertilizer demand, domestic production of fertilizers and
exploration of the domestic raw materials related to FERTIS.

After a seminar a UNIDO/FAO study may follow-up at a later stage.

Apart from the topics related to import substitution strategy in nitrogen

and phosphate fertilizers (mostly DAP and Urea), there is also a room at the
seminar for the discussion of export-oriented potash project in Ethiopia set
for delivery of muriate of potash (MOP) and sulphate of potash (SOP) to East
African and Indian Ocean countries.

G. MAJOR ELEMENTS

l1D1Dediate objective 1

Preparation of the frame of the Se~inar related to FERTIS development in

Ethiopia in order to work-out valuable conclusions regarding investment
strategies in the domestic fertilizer industry.

Responsible party: NCC/AISCO + UNIDO/FAO

Output 1.1

Activities 1.1.1

Agree with the Ethiopian Government the time, programme and the list of
participants of the seminar and prepare the final budget for this Technical
Assistance project.

Activities 1.1.2

Elaborate in cooperation with FAO a techno-economic paper opening th"

seminar and agree it with the Ethiopian Government.

Output 1.2

Activities 1.2.l

Prepare summary-conclusions from the seminar and work-out the framework

for the strategy of FERTIS development in Ethiopia.

Qitivitics 1.2.2

Decide on the seminar follow-up actions/studies/appraisals/if needed for

 - 97 -

the further strengthening of capabilities of the Ethiopian organizations

involved in FERTIS development/.

Immediate objective 2

Monitor the advance of all Technical Assistance projects related to

FERTIS development strategies in Ethiopia, and analyze all relevant actions
regarding organization, coordination and schedules in order to work-out the
complex FERTIS development programme assuring the maximum foreign exchange
saving for the country (investment programme based on import substitution and
export-oriented FERTIS scenarios)

H. PROJECT STRATEGY

1. Direct recipients

The Ethiopian Government and its agencies responsible for agricultural

production increase would learn, on the one hand, on the investment
possibilities, different scenarios and constraints in FERTIS development, and,
on the other hand, the industrial organizations would h~ve confirmed the
principal objectives and targets set for domestic fertilizer industry in order
to achieve food self-sufficiency in the country by the year 2000.

2. How will the benefits reach the target beneficiaries?

The Government of Ethiopia and its agencies will get, after Seminar,
summary-conclusions with a framework of strategy for FERTIS development.

3. Implementation arrangements

It is necessary for UNIDO in Addis Ababa to agree the objectives and the
programme of the seminar with the Ethiopian Government. At the same time
UNIDO-Vienna should agree the scope of the seminar and seminar opening paper
with FAQ-Rome.

4. Alternative strategies considered

The prep~ration of a study related to the issues discussed in the present

Technical Assistance project might be considered as an alterndtive strategy,
~owever, it would take a longer time to prepare such a study. Moreover, it is
believed that the planned seminar, through direct contacts of its participants
would yield more concrete and properly agreed conclusions on the strategy of
FERTIS development in Ethiopia.

I. HOST COUNTRY COMMITMENT

1. Government commitment

Government commitment is a pre-condition of the realization of the

present Technical Assistance project.

2. Legal arrangements

No legal arrangements are believed to be necessary.

 - 98 -

J. RISKS

The following are significant risks which could seriously delay or

prevent the achievement by the project of its outputs and objectives.

Estimated likelihood of occurence

(high, medium, low)

1. Major risks

The lack of commitment of the Ethiopian

Government or the lack of interest of national
organization or FAO in organizing the planned
seminar is a major risk for this Technical
Assistance project. Low

2. Risks to be monitored

No risks need to be monitored.

K. INPUTS

1. Skeleton budget: Provide a summary estimate of total costs by major

budget category.

National inputs External inputs

(specify currency) (US Dollar::;)

Personnel 60,000 Birr US$50,000

Sub-contracts
(specify type~ of goods or services)

Training

Equipment

Miscellaneous US$10,000

Total Tentatively 80,000 Birr U5$50,000

UN exchange rate: $1.00 - 2.07 Birr

2. Comment on any proposed inp11ts which may raise pol icy issues on
which Headquarters guidance is sought.

It is important that the techno-economic paper opening the seminar

touched the most important issues, including policy issues, related to the
strategy of FERTIS development in Ethiopia.

Person primarily responsible

for this formulation framework:
Sir,nature
Name:
Tit 1 '' :
 - 99 -

PR.OJE.;t OF THE GOVDJllENT OF E'l1110PlA

Title: Stand-by project related to potash exploration in

Dallol in Ethiopia.

Number:

Estimated duration: 3 years

Proposed sources of
funds:

Estimated UNDP
contribution: US$2 million

Estimated Government
cost-sharing: US$100,00fi

Estimated Government
input: 2 million Bi:-r.

•
 - 100 -

A. DEVELOP~ PROBLEM TO BE ADDRESSED BY THE PROPOSED PROJECT

1. Development problem at (sub-)sectoral (macro) level

The potash ore deposits occur in the Danakil Depression in Dallol and
Muslcy consisting of sylvinite, carnallite, kieserite, polyhalite and
kainite. The potash depo~it was discovered in 1911 and was exploited between
1915-1929. Several companies approach~d deposits with The Ralph K. Parsons
Co. of Los Angeles vhich completed the shaft to the ore body in 1966 and cut
underground openings into the sylvinite beds of the Musley deposit. Pilot
mining operations were ended when ~he mine was flooded in 1967. ~arsons
withdrew from the area though estimated potash reserves ranged from 10 to 18
million tons of recoverable KCl product. In 1983, PEC Engineering ~as engaged
by the Ethio-Libyan Mining Company (ELMICO) and finished Phase lA study on the
potential of potash mining.

2. Problem addressed by the project

Project involves the development of potash deposits in the Da~kil

Depression in the Tigre area. The growing guerilla activity in the region
cacses that the project cannot come to fruition, though ELMICO was established
in 1981 to supervise the construction of a 1.5 million MTPY open pit mine and
beneficiation facilities in order to start mining KCl by about 1990. Clean
ore body is one of cleanest in the world and sylvinite reserves in the Musley
ore body, estimated for about 13 million tons. represent for less than 1% of
those in the whole Da"lakilan area. After P£C Engineeri~g of France, Kilborn
Engine~ring of Canada has been employed by Economic Commission for Africa to
prepare Phase lA Report Critique. Once again the location was confirmed to be
ideal for marketing potash in Africa and Indian Ocean countries. The project
should be actively continued and Phase 2 of the Feasibility Study of Dallol
Potash Project should follow, however, there is no access to the site (war
zone) hence, this is Technical Assistance STAND-BY PROJECT.

B. CONCERNED PARTIES AND TARGET BENEFICIARIES

1. P~oblem identification

The ten-year plan envisages a ten-fold increase in annual revenue from

the mining sector. The biggest share of this revenue is expected to come from
the development of the Potash Deposit. In addition, potash mining is expected
to contribute significantly to th~ foreign exchange capacity of the nation.

The project is envisaged for a yearly production of l.~ mil!ion tons

KCl. Additionally, sulphate of potash can be produced. A gross selling
income of US$120 million could be earned per year.

Other mineral occurences of the area could be easily explored and

developed.

2. !arget beneficiaries

The impler.entation of the Project could create development opportunity of

t~~ area. Trained manpower for the mining sector could be developPd.

A marketing feasibility ~tudy for Ethiopian Potash was prepared for UN

Economic Commission for Africa. The study outlined the potential market areas
 - 101 -

mainly in Asia (Japan, India, China, Australia, Nev Zealand) and Eastern and
Southern Africa (Zimbabwe, Mauritius, Kenya, Tanzania and Zaabia).

Through its foreign exchange earnings, the Project could bring high
benefits to the Ethiopian economy and to the nation. Because of the civil war
in this area, all the studies, demonstration drillings and works were halted.
The Project can therefore be considered as a STAND-BY project.

C. PRE-PROJ~CT AND END-OF-PROJECT STATUS

1. The ;·e-projact situation

The Ethio-Libyan Joint Mining Company, established for the purpose of

mining the natural resources of Ethiopia, has gathered nine groups of reports
regarding Dallol Potash Project. The most important of those are: 33
Technical Reports on Ethiopian ~otash Project by Ralph M. Parsons Company
(1963-68); Market Feasibility Study for Ethiopian Potash by The Fertilizer
India Limited (1983); Dallol Potash Project, P~.se lA Report, Volume 1 + 2 by
PEC Engineering, 1984; Ethiopian Dallol Potash Project, Phase lA Report
Critique, by Kilborn Engineering, :985.

Phase 18, and in p&rticular Phase 2 of the Feasibility Report that deals
with finalising of the technical and economic evaluation of the project is yet
to be prepared. Phase 2 of the Feasibility Project includes the final reserve
estimates and the appropriate mining method. The final phase deals mainly
with the engineering aspect.

2. End-of-project status

After the Phases 81 and 2 of the Feasibility Study are prepared, all the
major data connected with: geology, mine, potash refinery, off-sites,
utilities and iufrastructure, port and shipping facilities, market and
marketing, project implementation arrangements and schedule, economic and
financial study, reseach programme, and final report - will be gathered and
examined by EI.HICO.

The final target is to establish an open pit solution potash mine

yielding muriate of potash, sulphate of potash and possibly other salts.
World-scale capacity potash complex in Ethiopia would be an export-oriented
project, that could deliver MOP and SOP to Eastern-Southern Africa and Indian
Ocean-Pacific region.

Since both, deposits and the quality of potash ores are very promising,
the Potash Project should be continued as soon as there is access to the area
(at present in guerilla zone).

D. SPECIAL CONSIDERATIONS

1. Special considerations

(a) Potash is of great importance for balanced FERTIS development in

Africa, as this continent is defi.cient with that nutrient. Potash
project in Ethiopia is therefore of great importance for
Ea!:tern-Southern Africa (and also Asia). Thereforp this Technical
Assistance Project should be givPn spcr.ial attention and priority in
the financemcnt, as &oon as the civil war in Ethiopia is over.
 - 102 -

(b) Sulphate of potash, a very valuable and more expensive than muriate
of potash, could be produced in Ethiopian potash complex, thus
allowing for highrr foreign exchange earnings. Special atter.tion
should therefore be given to the stage of potash refinery and
diversification of production prograame.

(c) The location of the Ethiopian potash deposits has greater advantages
over the other deposits, first of all because of the good access and
potential bigger share in the marketing of MOP and SOP in African
and Asian markets.

2. Potential negative effects

No potential negative effects are connected with the prrparation of this

STAND-BY TECHNICAL ASSISTANCE PROJECT.
( Taking into account potash production in Jordan, that might be the most
competitive to potash production in Ethiopia, as well as overall world market
for potash fertilizers, it is recommended that the Ethiopian Potash Complex
should be developed aLcording to the following scheme:

-Erection cf the facilities for the capacity 0.75 million HTFY of KCl and
start the operation with such a production level.

-Complete investigations of the ore body in order to increase the

cr.iantity of proven reserves up to ~he level allowing to raise the
production to 1.5 million HTPY of KCl.

-Erection of the facilities for the final production level

1.5 million HTPY.

E. RELATED TECHNICAL ASSISTANCE ACTIVITIES

A Seminar on fertilizer demand by 2000 ... , to be organized mutually by

the Ethiopian Government with FAO and UNIDO, is related to the present
Technical Assistance Project, as export-oriented scenario of FERTIS
development in Ethiopia is one of the topics planned to be discussed at the
•
Seminar.

Potash exploration project in Dallol is set for export as there is a very

little demand for potash fertilizers in Ethiopia.

F. DEVELOPMENT OBJECTIVE

The Dallol potas·~ deposits determined till now are:

1. Crescent ore body, 2. Musley ore body.

Musley ore body is more promising. If conventional mining is not

possible, the Musley ore body can likely be mined by solution mining and open
pit mining. Advantages of solution ~ining are the relatively simple process
requirements and use of solar energy (geothermal energy). Pilot solution
mining and evaporation tests should be carried out. The Husley pota5h deposit
is very shallow and parts of the ore body can be 1ained economically by open
pit methods, since kainite bearing members could be mined at low incremental
cost to the cost of mining the sylvite member. Kainite could likely be
processed separately and converted to potassium sulphate product.
 - 103 -

The Kusley ore doposit is located near the city of Kersa Fatma on the Red
Sea. Karsa Fatma once served as a port for potash shipments. The location is
ideal for marketing potash in Africa and India as well as other countries.
The strategic location and low transportation costs will likely outweigh the
effects of any negative features of the Kusley orebody. The Kusley potash
• deposit may potentially be exploited economically and should be actively
pursued .

• G. MAJOR ELEMENTS

Immediate objective 1

Immediate objective of this STAND-BY TECHNICAL ASSISTANCE PROJECT is to

complete. as soon as there is ar. access to the area with potash deposits.
project feasibility study - Phase lB and Phase 2, in order to prepare
conclusions allowing the Ethiopian Goverll!llent to decide on the investment into
export-oriented potash complex in Dallol.

Responsible par~y

Output 1.1

Activities 1.1.1

Secure the local and foreign component of the f inancement for the
completion of the project feasibility study to be continued as soon as the
pot~sh deposits area is safe enough to carry any activities.

H. PROJECT STRATEGY

1. Direct recipients

ELMICO, the Ethiopian Government and the whole nation would benefit from
the implementation of export-oriented potash complex in Dallol.

2. How will the benefits reach the target beneficiaries?

• It is estimated ttat a gross selling income of US$120 million could be
earned from the ex?ort-oriented project envisaged for the capacity of
1.5 million HTPY of KCl.

The project would directly and positively influence the foreign exchange
net balance in Ethiopia.

3. Implementation arrangeroents

To be assessed when the civil ~r in Ethiopia is over, or at least there

is safe access to the potash ore bodies.

4. Alternative strategies considered

There is no alternative strategy to be considered for the implementation

of the export-oriented potash project in Ethiopia.

The only alternative to the present stand-by technical assistance project

could be the total abandoning it until there is an access to the area. of the
 - 104 -

potash deposits. This, however, is considered to be a strategy not too active

enough, given the very promising location and potential efficiency of the
eyploration of the potash deposits in Ethiopia.

I. HQST COUNTRY COMMITMENT

•
1. Government commitment

• The commitment of the Ethiopian Government to this Technical Assistance

Project, to be treated as a STAND-BY PROJECT is essential for UNIDO to secure
any financem<:nt for this project.

2. Legal arrangements

Legal arrangements between Ethiopia and Libya on the establishment of

ELMICO and on the purpose of mining the natural resources of Ethiopia should
be looked into.

J. RISKS

The following are significant risks which could seriously delay or

prevent the achievement by the project of its outputs and objectives.

Estimated likelihood of occurence

(high, medium, low)

1. Major risks

The major risk of proceeding with the

present Technical Assistance Pr~ject in Ethiopia
is political unstability in the region of potash
reserves (the Danakil Depression in the Tigre area
of northern Ethiopia).

2. Risks to be monitored

No risks need to be monitored until there is a safe access to the potash

• reserves in Ethiopia.
 - 105 -

K. INPUTS

1. Skeleton budget: Provide a sumaary estimate of total costs by major

budget category.

National inputs External inputs

(specify currency) (US Dollars)
•
Personnel

Sub-contracts
(specify types of goods or services)

Training

Equipment

Miscellaneous US$100,000

Totals Tentatively 2.2 million Birr US$2 million

UN exchange rate: $1.00 - 2.07 Birr

2. Comment on any proposed inputs which may raise policy issues on

which HeadqWirters guidance is sought.

No comments .

\
•
Person pri~~rily responsible
for this formulation framework:~~~~~~~~~
• Signature

Name:
Title:
 - 106 -

BlhLIOGRAPHY
(main sources)

1. EIU - The Economist Intelligence Unit - Country Profile: ETHIOPIA,

Somalia, Djibouti.

• 2. The Africa Review 1989 - ETHIOPIA.

3. Provisional Military Government of Socialist Ethiopia - Ten-Year

Perspective Plan 1984-85 to 1993-94, Addis Ababa 1984.

4. UNIDO-SIDFA Yearly Country Brief on Ethiopia 1988, Addis Ababa 1989.

5. World Development Report 1988 - The World Bank, Washington 1988.

6. The World Bank Annual Report 1987 - Washington 1987.

7. The World Bank - Monthly Operational Summary of Proposed Projects, United

Nations 1989 - Development Business No. 282, November 1989.

8. The World Bank Report No. 6859 - ET, 1988- ETHIOPIA - Public Investment
Programme Review.

9. The World Bank Report No. 7111 - ET, 1988 - ETHIOPIA - Mineral Sector
Review.

10. Mining Annual Review 1985 through 1988 - ETHIOPIA.

11. World Survey of Sulphur Resources, Second Edition, 1974 - The British
Sulphur Corporation Limited.

12. World Survey of Potash Resources, Third Edition, 1979 - The British
• Sulphur Corporati~n Limited.

13 . El..MICO - Dallol Potash Project - Phase lA Report, 1984 - PEC Engineering

• Div~sion Mine, France.

14. UN Economic Commission for Africa - Ethiopian Dallol Potash Project Phase
lA Report Critique, 1985 - Kilborn Engineering, Canada.

15. FAO Fertilizer Progra111111e - Ethiopian Agriculture - Crop Yield Response

and Fertilizer Policies, July 1989.

16. African Agriculture: the next 25 years - Atlas of African Agriculture,

FAO, Rome 1986.

17. Management of Nitrogen and Phosphorous Fertilizers in Sub-Saharan Africa,

1966 - Hartinus Nijhoff Publishers (Proceedings of a symposium held in
Lome, Togo, March 1985).

18. FAO Fertilizer Yearbook, 1985 through 1988.

 - 107 -

19. Agricultural and Industrial Development Ba.nlc, Annual Report 1987, Addis
Ababa, Ethiopia 1987.

20. Data and information derived from different Ethiopian Organizations

(mainly NCC, AISCO, KOA, EIGS, ELMICO, KOCTD, KOKE, IAR, KOTC and
others), as well as FAO, UN, EGA, UNDP in Addis Ababa - field mission to
Ethiopia, Dec. 12-27, 1989 .