Project finance has become one of the most common methods of financing the construction of Mineral fertilizer plants, because the funds are allocated to the project itself and are paid out of the cash flows it generates.

Development of large investment projects in the agricultural sector, chemical and fertilizer production requires powerful financial instruments, which allow customers to obtain the necessary funds for construction of Mineral fertilizer plants and launch new facilities without affecting current economic activity.

This is achieved by creating a legal entity independent of the initiator — the Special Purpose Vehicle, or SPV.

The company must obtain financing and implement the investment project. Without this financing, many large competitive market development projects involving both private and public interests would not succeed.

Project finance differs from traditional financing methods in the following ways:

• A financing structure based on a dedicated project company.
• A contractual framework that provides for the allocation of funds against the future financial flows of the project.
• Exemption of the project initiator from financial responsibility for the debts of the project.

For this reason, project finance requires accurate identification, analysis and management of each of the risks that may affect the viability of the project, as well as an exhaustive study of its financial prospects.

A thorough and comprehensive pre-investment study will be critical to the success of the project and to minimize the risk of contingencies and losses that may arise during the various phases of the project. As part of these risks, stakeholders should take into account the consequences of a possible SPV bankruptcy declaration based on the applicable national legislation of the host country and international norms.

The risk of SPV insolvency is usually a key element in assessing the feasibility of construction of Mineral fertilizer plants financing

The current legal framework of the host country regarding bankruptcy and its consequences is crucial to accessing the required financing.

A system of guarantees should be developed for all stakeholders and a detailed analysis of the impact that project insolvency may have on the parties and their obligations under related contracts should be conducted. A professional approach to organizing PF helps minimize risks and ensure that funds are disbursed on the right terms.

Currently, fertilizer production is concentrated in South and East Asia, primarily in the People’s Republic of China, but also in the EU, Russia, Canada, the United States, and others.

Global demand for agricultural products is growing, which, along with a shortage of fertile land, contributes to the demand for fertilizers of all types.

The global market for mineral fertilizers is showing steady growth.

Experts predict that the market will reach USD 130 billion by 2027.

Despite the adjustments brought on by the ongoing pandemic, this trend is undeniable. The situation in global agriculture is so complicated that abandoning this strategic product would put at least 50% of the world’s population on the verge of starvation.

Raising large funds through an independent project company (SPV) helps businesses build new plants without burdening the company’s balance sheet with long-term loans.

SCM LOANS LIMITED has assembled a team of leading European experts in financing and project management.

We offer financing for mineral fertilizers plants in Europe and beyond, including professional services of experienced financial advisors.

Cost of financing fertilizers plant construction

The cost of building and financing a mineral fertilizers plant depends largely on the chosen technology, capacity, location and a number of other factors.

On average, such facilities cost a few tens of millions of dollars, but the cost of some facilities runs into hundreds of millions of dollars (for example, the famous Dangote Fertilizer Plant in Nigeria, worth $2.5 billion).

Pre-project costs refer to the capital that needs to be invested before the project can begin. This item includes costs associated with project management, pre-construction research costs, and research costs to determine the quality of the product and the safest, most efficient, and economical method of obtaining it. In general, the pre-project costs are small compared with the total investment costs and amount to no more than 3–5%.

Accelerating technological development, increasing quality standards and stricter environmental requirements contribute to higher costs for new production facilities.

The structure of the project viability analysis will look as follows:

• A detailed analysis of capital expenditure requirements and operating costs.
• A comprehensive analysis of the profitability and viability of the project as a whole.
• Evaluation of financing options for the project.

Structure of investment costs: Due to depreciation and aging, assets lose value over time. Of the total amount of capital expenditures, only a small portion intended for the purchase of the site can be fully recovered through the subsequent sale of the land. Of the rest of the capital, investors can obtain only a small portion corresponding to the market price of the used equipment.

Capital expenditures are the most important item of initial investment.

It is the part of capital intended for the purchase and installation of equipment and materials for the plant.

The list of the most expensive equipment for building a fertilizer plant includes special chemical resistant tanks, feed hoppers, reactors, pumps, filters, conveyor belts, steam boilers, compressors, etc. As with any equipment for the chemical industry, the selection of reactors requires an individual approach to projects depending on the specific chemical process. Despite the extensive range of off-the-shelf equipment from the world’s leading manufacturers, the customization of equipment can affect the final cost of a project.

Numerous potash, nitrogen and phosphate mineral fertilizer production technologies have been developed around the world, each based on different process schemes and equipment.

Chemical equipment of such world famous brands as De Dietrich Process Systems, Christof Holding AG, Zhejiang Shuangzi Intelligent Equipment, KASAG Swiss AG, Parr Instrument GmbH and others is available to customers. Selection of specific equipment, layout and manufacturer is carried out individually depending on customer’s requirements and financial capabilities.

The following costs should be considered for financing a fertilizers plant projects,

• Unforeseen costs. This item includes possible losses related to errors in management, construction, startup, etc. It is recommended to estimate from 10 to 30% of the project cost to avoid budget overrun.

• Cost of insulation. Any chemical production facility depends on effectively maintaining optimum temperature at critical points in the process. The cost of materials and labor to install thermal insulation depends on the technology chosen, the climate zone, and the availability of outdoor areas.

• Cost of electrical installation work. As any energy-intensive chemical production plant requires the construction of an electrical substation, connection to a medium-voltage power line and a whole range of electrical installation work on site (eg, the connection of electric motors and control equipment).

• Cost of machinery and equipment. This takes into account the cost of installing the equipment, labor costs, and the cost of materials needed to accomplish this task (metal structures and more). This category of costs can make up from 30 to 50% of the total cost of the investment project.

The additional costs associated with the start-up of the plant are usually borne by the customer after all installation work has been completed. The plant must be up and running and all problems must be corrected before the complex begins to produce fertilizer for sale.

SCM LOANS LIMITED provides comprehensive services related to financing the construction of fertilizer plants.

We carry out feasibility studies and develop project documentation, provide professional advice at all stages of the project, develop personalized financing and tax optimization schemes.

Stages of an investment project

During the planning and due diligence phase, potential investors conduct a detailed technical, legal, and financial evaluation. The due diligence report is considered a key tool for evaluating the project. This report includes a description of the project’s legal framework and a detailed analysis of legal, technical, environmental and financial risks.

The organization of project finance includes four main stages.

These are the planning and comprehensive study of investment opportunities, the bidding phase, the construction phase, and the operation and income generation phase.

The bidding phase will require compliance with a number of generally accepted standards, especially in public-private partnership (PPP) of construction of Mineral fertilizer plants. There is the so-called British model and the Continental model of bidding, which differ in their procedure and conditions.

The British model is characterized by two phases.

The first phase serves for the preliminary selection of bidders on the basis of information provided about the experience and capabilities of managing and organizing similar projects. Applicants on the list must submit a “Best and Final Offer” (BAFO). At this stage, bilateral negotiations are conducted with the bidder until final terms of all contracts are reached.

In the Continental Bidding Model, there is no preliminary selection phase. In this case, bidders submit a final proposal to the customer, eliminating any negotiation of contract terms.

The construction phase of a fertilizer plant ends with the testing and commissioning of the facility. The construction stage implies assumption of high risks, since the greatest investment efforts are made long before the cash flows required to secure repayment of the borrowed funds are received.

If you are interested in the construction of Mineral fertilizer plants project financing, contact the official representatives of SCM LOANS LIMITED

We have a wide network of business partners all over the world, including producers and suppliers of industrial equipment, engineering and construction companies, scientific institutes and universities, banks and financial institutions in Spain and abroad.

Contact us to find out more.