Yara International is a Norwegian fertilizer company with clients in about 150 countries, including Ethiopia. Two months ago the company signed an agreement with the Ethiopian government to mine potash in the Danakil Depression, in the state of Afar. Furthermore, an agreement was also signed with the Development Fund of Norway to fund the training of locals in the region. The project is expected produce up to 600,000 tons of potash per year when it becomes operational. EBR’s Mikiyas Tesfaye talks to Esben Tuman, Vice President Corporate Communications, Yara International.
EBR: How long has Yara been in Ethiopia?
Tuman: We commenced the project in 2009.
What is the latest agreement Yara signed with the Ethiopian government?
This is a mining agreement that we need to advance with the project. We have had an exploration license for quite some time now. This agreement allows us to proceed to the next phase: identifying everything related to the project. It’s a good day!
Now that a mining agreement has been signed, what is the next step?
We’ll spend the next year conducting further studies in engineering, marketing and sales. The findings of the study will be presented to our management and board of directors, who will make investment decisions.
Given the investment decision will have a positive outcome, what is the estimated cost of Yara Dallol BV Potash Project?
Initial estimates put the total cost of Yara Dallol at USD740 million, but we expect the project to cost less.
What attracted Yara to invest in Ethiopia?
Ethiopia has a very good [potash] deposits and they are of good quality. That is the starting point. As an investor, you also need to make sure you can do business in the place where the resource is located.
And the support the Ethiopian government has showed by investing in infrastructure shows us the country is sincere about attracting foreign direct investment. That is very important for a foreign investor to have the confidence about returns in investment. We are satisfied with the support of the government.
Yara Dallol will produce up to 600,000 tons of potash per year when it becomes operational, which is enough to satisfy 10Pct of the current global demand. Since it is an ambitious project, what are the challenges you faced so far and expect to face in the future?
So far, we have been mainly focused on the technical aspects of the project. This initial development process, which involved designing an entirely new mining method specifically catering for Yara Dallol called ‘solution mining,’ has been a challenge but not a problem.
We are looking for the way forward, how we would run the project if we make that investment decision; how much of the product goes into local consumption, and how much of it will be exported.
Any legal or policy challenges?
Because of the complexity of the agreement, both parties have had challenges and faced some hurdles and difficulties in certain areas that we needed to work more on. But I must underline here the positive attitude of the authorities which has made the deal go through.
Some studies indicate that Ethiopia has 1.3 billion tons of potash reserves; and many companies have come to exploit these minerals but none has succeeded so far. What have you learned from others who have failed to mine potash in Ethiopia?
We have a very thorough process when working on any project. And we do large projects, be it in mining or in production, so we have extensive experience in the area. We may have learned from others but our biggest guideline comes from the strict procedures we follow to ensure success.
When is Yara Dallol expected to commence operations?
We expect the investment decision to be passed a year from now. But after that, I can’t give you a specific time frame: it could go quickly or slowly.
How many jobs is the project expected to create?
A thousand permanent jobs and many more temporary jobs during the construction of the plant.
In addition to the huge investment, what can Yara bring to Ethiopia?
Our company is more than a century old. Our entire foundation was based on innovation to solve a crisis. At the beginning of the 1900s, there was an emerging famine in Europe. Farming was not able to meet the demand. Ever since then, Yara has been working with fertilizers, and not only with commodity fertilizers, but also premium fertilizers.
The thing with these fertilizers is that you can’t just sell the product; you need to know how to use it to get the most out of it. We work on providing farmers not just with a bag of fertilizers, but also with practical solutions.
This means we have a lot of knowledge, with agronomists working as our sales people. We share our knowledge with the farmers. We also get feedback from the farmers to understand their needs.
So, our experience and expertise would be [of great] value to Ethiopia, in addition to the investment we bring.
And in terms of knowledge and technology transfer, what are you planning to do?
We aim at having a vibrant local staff. We are not the kind of company that would ship in a group of people and have a foreign work force. And because of the nature of our operations we need skilled manpower. There will be some vocational training. Getting that knowledge to local employees is something we really depend on because we can’t really operate in isolation and we are part of the society. It’s in our best interest to make it work because we plan on being here for many years to come.
Have you assessed the shortage of local skilled manpower as a potential challenge?
It is something that will be worked on going forward. As part of the agreement we signed with the Norwegian authorities, funding will be provided for vocational training of local people, who will become prospective staff at the plant.
Is Yara planning to establish a fertilizer factory here in Ethiopia?
We have had some sales of fertilizers in Ethiopia over the past 20 years through government tenders. There could be a future, particularly for our premium products to be produced here. But this is something that may or may not happen. It is definitely a model that we use in other countries, and given the rich resources available in Ethiopia, it is natural to explore local sales and distribution. A production plant? I don’t know. It is way too early to speculate on that.
Typically if you look into production plants, that is a very long process. From when the decision is made to when the plant is up and running, it may take at least five years. Right now, our plans are focused on mining and then, we can look into the possibility of increasing sales and agronomic support.
What is Yara’s policy on research and development?
We have research centers and we work on soil and plant analysis. We have the technology to know exactly what a given plant needs, and what time, proper use of water it requires thanks to our extensive research and development engagement. Through years of research, we’ve discovered that ‘one size fits all’ actually works, but it is not good enough when it comes to the use of fertilizers. Our research findings have enabled us to identify the specific needs of specific plants in particular locations and we know how to cater to the plant’s individual needs.
What is Yara Dallol doing to minimize the impact of its operations on the environment?
There will be no open mining pits. The damage to the landscape is very small. And the plant, in solution mining, is temporary and can be removed from the area once the project is concluded.
We have to use water, which is a scarce resource, so we have paid due attention to treat the water so it does not cause pollution.
When it comes to the use of fertilizers and its production, we do quite a lot in our research centers. For instance, one of our research centers came up with this innovative catalyst that reduces green house emissions by as much as 50Pct. We have one of the most energy efficient mineral fertilizer plants in the world.
Environmental issues pertaining to fertilizers are more related to nitrogen which we do not use in our premium products.
What can Yara contribute to Ethiopia’s fight against food insecurity?
We can use our knowledge and experience from other parts of the world. We can’t improve the agricultural sector but we can give our knowledge as input so that Ethiopia can improve its agricultural sector. Direct intervention with the farmers, working together with the government, academic institutions, financial institutions, companies engaged in infrastructure construction, etc. are some of the ways we can contribute.
Globally, 2016 was a challenging year for the fertilizer industry with oversupply and falling prices. What will the future of the market be by the time Yara Dallol becomes operational?
The short term picture will remain as it is today. There is a lot of supply and there is still production capacity coming in the near future. We believe that in not too long, it will turn and the growth in demand will surpass the growth in supply. This is very typical of the industry.
Yara Dallol is a joint venture between three companies. How confident are you the project won’t run out of steam when it comes to financing down the line?
We have been working over the past few years to make sure the project can stand on its own and without requiring a cash injection. It has to be a good project, even without being seen as being part of Yara. It needs to have a solid business case. The way it looks today, we are very confident and I hope, we will be equally confident when it is time to make the investment decision. But having lenders and financial partners is very important to this project.
6th Year . January 16 – February 15 2018 . No.57