The saga of the fertiliser industry in Sri Lanka

 It has been reported that the Government is to spend Rs. 40 billion ($ 205 million) for the import of fertiliser in 2020. These imports will consist of 265,000 metric tons of urea, 65,000 metric tons of Triple Super Phosphate (TSP) and 75,000 metric tons of Murate of Potash (MOP), thus making up the NPK fertilisers that could be mixed according to the needs of the agricultural sector. If the requirements of urea are produced locally, we will be able to save $ 71 million in 2020 – Pic by Shehan Gunasekara

• The fertiliser that is added to crops for rapid growth and to obtain maximum yields whether they are cereals like paddy or vegetables and other crops has to contain Nitrogen (N) Phosphorous (P) and Potassium (K). 
• A mixture of these elements are generally referred to as NPK fertiliser and the ratio of the elements such as N, P and K will vary depending on soil conditions, the particular crop and other factors.

By Dulip Jayawardena

Urea plant of SFMC

The State Fertilizer Manufacturing Corporation (SFMC) was established as a wholly-owned Government entity under the State Industrial Corporation Act of 1973. Activities related to the SFMC were confined to the prefeasibility and feasibility studies related to the construction of a urea plant from naphtha, a by-product from the oil refinery which was adjacent to the proposed plant site.

I was personally involved in site investigations as a geologist from the Geological Survey Department (present GSMB) in early 1978. It must be stressed that it took nearly four years for the construction of the urea plant. In the early 1980s Kelogg Overseas Corporation (a British company) constructed a urea plant to manufacture 980 tons of urea a day at a cost of $ 250 million.

The feedstock used for this purpose was naphtha (fuel lighter than petrol) which is a by-product of the oil refinery at Sapugaskanda. However naphtha had a very high demand for producing many other petroleum products and the Ceylon Petroleum Corporation (CPC) decided to sell naphtha to the international markets.

The main reason for the for the loss of demand of naphtha as a feed stock for urea manufacture was the availability of natural gas in significant quantities that were tapped in large oil producing countries particularly in the Middle East. Accordingly naphtha-based urea plants could not compete with those of natural gas-based facilities. Since Sri Lanka had only one oil refinery at that time it was a burden for the Treasury to settle bills to The Petroleum Corporation which operated the refinery and the Government at that time was of the view that it was profitable to sell naphtha in the international market than its supply to the urea plant.

As a consequence, on the advice of short-sighted State officials and some politicians the Government at that time decided to dispose of the recently-constructed urea plant. Accordingly in early 1986, international bids were called for the sale of the urea plant by the State Fertilizer Manufacturing Corporation. 

At this stage I would like to quote an article published in the Daily News newspaper on 23 January 2009 titled ‘Interventions in fertiliser manufacture’ by Ministry of Planning and Economic Affairs Deputy Director Calyanatissa Gunawardena, who stated that “the suspension (urea plant) was triggered by poor counterpart support and gross mismanagement , a common malady in the private sector. The project was infested with ‘Post Masters’ – bureaucrats who held their posts without recruiting experts in the field, a common malady seen in the State sector even to this day. 

It was misinterpreted as a common failure. This was partly attributed to high capital costs primarily as a result of manoeuvres made by vested interests. Ironically the Sri Lankan Government did not introduce legislation to protect the industry (a facility extended to all other industries in both public and private sector at that time) to protect the nascent fertiliser industry.”

Re-location of the urea plant from Sapugaskanda

It was also reported that on 29 July 1996, Southern Petroleum Industries Corporation (SPIC), a company based in South India, was planning a 1,000-ton/day (330,000 ton/year) urea facility in Jabel Ali (an investment zone) in the United Arab Emirates (UAE) based on a plant to be relocated from Sri Lanka. The Indian company after environmental clearance from UAE was to commence re location of the plant at end of July 1996 and was to go on stream in March 1998. 

The engineering contractor and technology licensee was to be Kellog which originally designed our urea plant and SPIC bought secondhand from Sri Lanka. It is also relevant to state that there is no information in the public domain as to how much this urea plant was sold by the Sri Lankan Government to the Indian company.

However it is noted that the facility constructed to house the employees of the State Fertilizer Manufacturing Corporation (SFMC) was used for undercover activities during the JVP insurrection in 1985 according to the local press. It is interesting to find out what happed to this housing complex.

Conclusions

In this article I have highlighted the facts about the urea plant that was run by the SFMC from 1982-1985 produced 940 tons of urea fertiliser. Since the closure of this plant and its sale we are importing over an average of 200,800 tons of granulated urea at a cost of $ 269 per ton, draining foreign exchange up to $ 55 million.

If the Sapugaskanda urea facility was in operation it would have produced over 294,000 tons of granulated urea which is valued at $ 79 million (working 300 days a year). If we now turn back and think if the urea plant was in operation even at a loss whether we could have a deficit or not in foreign exchange draining the country?

It has been reported that the Government is to spend Rs. 40 billion ($ 205 million) for the import of fertiliser in 2020. These imports will consist of 265,000 metric tons of urea, 65,000 metric tons of Triple Super Phosphate (TSP) and 75,000 metric tons of Murate of Potash (MOP), thus making up the NPK fertilisers that could be mixed according to the needs of the agricultural sector. If the requirements of urea are produced locally, we will be able to save $ 71 million in 2020.

Recommendations

With the above revelations I strongly recommend to the Government to appoint a High Level Technical Committee (HLTC) headed by the Secretary Ministry of Agriculture to study the feasibility in constructing a urea plant based on other products such as natural gas and air or, after upgrading the refinery, improve production by hydro cracking, etc.

It is reported that Sri Lanka has commercially exploitable deposits of natural gas off the north western offshore areas. It would be highly advantageous if the exploitation of such gas deposits is expedited and natural gas utilised for manufacture of urea. The use of LNG too could be studied for urea manufacture if feasible.

I shall write in more detail relating the history of phosphate fertiliser manufacture in my next article, where the Government has decided to manufacture Single Super Phosphate (SSP 20% P2O5) with foreign collaboration Private-Public Partnership (PPP) utilising the Eppawela Phosphate Deposit. 

I was closely involved from the discovery of the phosphate deposit from 1975 and also worked in an advisory capacity when I held the position of Economic Affairs Officer – United Nations ESCAP from 1990 to 2003. These revelations will be more shocking that the saga of the urea plant. 

The original proposal by company called Agrico Chemical Corporation (AGRICO), a subsidiary of Williams Companies of USA (13 out of Fortune 500 Companies), was so attractive that our equity was 51% and we committed only 25 million tons of phosphate rock out of an inferred reserve of 60 million tons to this Joint Venture. This project fell through due to infighting between the President and the Minister in Charge of Industries at that time. Hope you will look forward to that revelation soon.

[The writer is a retired Economic Affairs Officer – United Nations ESCAP from 1990-2003 and worked as a geologist in the Geological Survey Department (GSMB) from 1965 to 1986 and Director from 1983-1986. He can be contacted on [email protected]]