Indo-Egyptian Fertilizer Company

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	24449
Company name	Indo Egyptian Fertilizer Company
Country	Egypt
Sector	Chemicals
Environmental category	B
Department	Oil, Gas, Mining And Chemicals
Status	Pending Disbursement

Date SPI disclosed	December 11, 2006
Projected board date	January 20, 2007
Previous Events	Signed: May 29, 2007 Approved: April 19, 2007

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The Indian Farmers Fertilizer Cooperative Ltd (IFFCO), India’s largest fertilizer producer, and the El Nasr Mining Company (ENMC) have set up a joint venture company in Egypt called the Indo-Egyptian Fertilizer Company (the company or IEFC). IEFC was incorporated in November 2005 to set up a greenfield phosphoric acid plant in Edfu, Aswan Governorate, Egypt, with an installed capacity of 0.45 million tons of P2O5 per annum. The project configuration consists of a phosphoric acid plant with capacity of 1,500 tons per day (100% P2O5) and a sulfuric acid plant with capacity of 4,500 tons per day, including power generation and related offsite facilities. The poject uses phosphate rock and sulfur as raw materials and produces phosphoric acid as output. The establishment of poject has been accorded the status of ‘Private Free Zone’ by the General Authority for Investment and Free Zones (GAFI). The entire plant’s production of phosphoric acid will be exported under a long-term off-take agreement.

Project sponsor and major shareholders of project company

ENMC, which holds 24% of the copany’s shares, will supply about 1.7 million tpa of phosphate rock, the feedstock, to the Company. IFFCO, which holds 75.95% of the company’s shares, will utilize the Project’s entire production of phosphoric acid in its fertilizer plants in India. Kisan International Trading FZE, Dubai (KIT), a wholly owned subsidiary of IFFCO, will hold 0.05% of the IEFC’s shares and will be the responsible for off-taking the phosphoric acid on a long-term basis.

IFFCO was established as the initiative of Indian farmers in 1967 and by March 2006 its total member shareholders had reached 37,424 cooperative societies. IFFCO owns and operates five fertilizer plants in India; two in the state of Gujarat, two in the state of Uttar Pradesh, and one in the state of Orissa. It has the capacity to produce 8 million tons of fertilizers per annum, including 4.4 million tons of phosphate-based fertilizers. During the year 2005/06 IFFCO registered an overall capacity utilization of 102% in nitrogenous fertilizers and 106% in phosphate-based fertilizers

ENMC is a government-owned company and the largest mining company in Egypt and is presently under the administrative control of the Metallurgical Holding Company. ENMC was established in 2001 after the merger of El Nasr Phosphate Company with Red Sea Phosphate Company. It currently produces and sells phosphate rock and other minerals in Egypt. Phosphate rock constitutes around 80% of ENMC’s total productions with ilmenite, talc, quartz, kaolin, clay, iron oxide, and gypsum accounting for the rest. ENMC’s main mining activities are carried out in the reserves near Edfu, south of Luxor, in the Umtondiba and Shakab areas of Upper Egypt, where ENMC has a lease to mine an area of 86.5 km2 with estimated reserves of 135.2 million tons and proven deposits of 70 million tons. In addition, ENMC has applied for additional mining lease with an estimated reserve of 64.8 million tons.

Total project cost and amount and nature of IFC's investment

The total project cost is estimated at $350 million, which is proposed to be financed on a 30:70 equity-to-debt basis. The proposed IFC investment comprises a $50 million A Loan for IFC’s own account and $100-150 million IFC B Loan to be syndicated among a group of international banks and financial institutions. The balance will be funded through parallel loans from local Egyptian banks.

Location of project and description of site

The proposed project will be located at Edfu, Egypt. The proposed project site lies in Sebaeya, which is located between Qena and Aswan Governorate. The proposed area lies on the eastern bank of river Nile. The project site is bounded from the East by the Eastern Desert Plateau; from the South by an agricultural strip along the River Nile; from the West by the River Nile; and from the North by the Eastern Desert Plateau.

Anticipated development impact of the project

The project is set to become Egypt’s first major phosphoric acid manufacturing facility, thus adding significant value to the locally produced phosphate rocks, and by implication retaining significant employment and economic activities within Egypt.

The Government of Egypt is keen to develop the manufactured exports sector to complement the traditional sources of hard currency, which are oil, tourism, workers remittances and Suez Canal revenues. The proposed project is export oriented and will contribute towards increasing Egypt’s industrial exports, a key objective of the Government.

The project will develop the phosphoric acid industry in Egypt by expanding the utilization of currently under-utilized natural resources. Operation of the project is expected to create an estimated 350 jobs, a significant number given the high level of unemployment in Egypt (estimated at 15%-20%) in addition to the jobs created during construction. The project would involve transport of imported sulfur, an input, from the port to the plant and transport of phosphoric acid from the plant to the port. Thus, a substantial amount of indirect employment is also expected to be generated in transportation and support infrastructure. Indirectly, the project is also likely to contribute to the development of SMEs in the region for supplies and services needed by the project. The project will also help make available a critical input for the Indian agricultural sector, a key priority sector in the country. Furthermore, the project represents a South-South investment and is well aligned with the Government of Egypt’s objective to develop the Upper Egypt region in which the proposed project will be located.

Egyptian phosphate rock is a recent entrant to the international phosphate trade market and hence customers are unfamiliar with Egyptian phosphate rock. The long-term off-take agreement with KIT/IFFCO is expected to boost international buyers’ confidence in the suitability of Egyptian phosphate rock.

The project’s proposed development impact indicators include:

- annual volume of Egyptian-produced phosphate rock processed at the Project site into merchant grade phosphoric acid;
- annual foreign exchange generated from the Project’s exports and
- number of jobs created at the company’s plants in Edfu.

IFC's expected development contribution

IFC will play an important role in providing a long term privately syndicated financing package for the project, which has been relatively limited outside of the hydrocarbons sector in Egypt. The provision of funding to the company for tenors longer than that available from commercial banks is critical to the viability of the proposed project since it would enhance the company’s ability to weather downturns arising from any price cyclicality in the industry.

IFC’s expertise in structuring large, complex projects, particularly projects where shareholders are also feedstock suppliers and off-takers, provides a strong value added to the sponsors and company. IFC is also valued for its role as an honest broker between the shareholders and for its ability to mitigate the inherent conflict of interest in the corporate structure by using its past experience to ensure that the feedstock supply and product off-take agreements are both prepared on arms’ length basis which will support the long term financial viability of the company. Furthermore, IFFCO values IFC’s presence in the financing plan, which it sees as mitigating some of the political risks inherent in this large investment in a foreign country. The sponsors have sought significant feedback and assistance from IFC in the preparation of the ESIA, in the selection of consultants, and in the preparation of the debt syndication strategy.

IFC is therefore expected to play an important role in facilitating this large South-South investment proposal, which if successful could pave the way for other similar foreign direct investments by Indian DAP manufacturers in countries in the Middle East-North Africa region, which is rich is phosphate rock deposits.

Environmental and social issues - Category B

This is a Category B project according to IFC’s Procedure for Environmental and Social review of projects because a limited number of specific environmental impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. The project involves construction and operation of a new phosphoric acid plant at a barren semi-desert area. Environmental, health, safety, and social issues associated with this Project including air emission, wastewater treatment and discharge, solid and hazardous waste management, hazardous material management, occupational health and safety, community safety, land acquisition, labor issues, and community relationship and development are described greater detail in the Environmental and Social Review Summary.

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