- (- (-1 Technical and Economic Evaluation of the Lac Single Superphosphate Factory in Albania Funded by United States Agency for International Development (USAID) Grant No. 180-0046-G-00-2491-00 Prepared by International Fertilizer Development Center P.O. Box 2040 Muscle Shoals, Alabama, U.S.A. IFDC Contract No. 01112/93 December 28, 1993 Acknowledgment and Thanks The management of IFDC extends its gratitude and appreciation for the efforts and assistance of a large number of Albanians whose contributions made possible the completion of this study. In particular, we appreciate the excellent cooperation, support, and contributions provided during the in-country portion of the study by the staff members of the various departments at the Lac Single Superphosphate Factory dealing with the production, maintenance, technology, accounting, laboratory, and marketing activities. Also, we are indeed thankful for the excellent guidance and assistance provided by the Vice Minister and other officials of the Ministry of Industry, Mineral Resources and Energy, including the Albanian Copper Company, the Mineral Processing Research Institute, the Geologic Institute, and the Geological Enterprise of Gjirokastra. Finally, we are indebted to the United States Agency for International Development (USAID) for the financial assistance that made the study possible and to the USAID and IFDC offices and staff in Albania for the assistance and support given to the study team. International Fertilizer Development Center December 1993 Amit H. Rcy President and Chief Executive Officer Executive Summary Technical and Economic Evaluation of the Lac Single Superphoshate Factory in Albania Prepared by International Fertilizer Development Center (IFDC) P.O. Box 2040 Muscle Shoals, AL 35662 for United States Agency for International Development (USAID) Grant No. 180-0046-G-00-2491-00 December 28, 1993 Technical and Economic Evaluation of the Lac Single Superphosphate Factory in Albania Executive Summary Introduction An evaluation was undertaken by the International Fertilizer Development Center (IFDC) of the Lac Single Superphosphate (SSP) Factory in Albania. The evaluation was funded under the terms of a grant from the United States Agency for International Development (USAID) for the purpose of assessing the technical and economic viability of the Lac SSP factory under the current market economy system. The IFDC evaluation team consisted of Donald R. Waggoner, Chemical Engineer and Team Leader; Donald C. Young, Phosphate Fertilizer Specialist; Steven J. Van Kauwenbergh, Specialist, Geology and Mining; and Claude C. Freeman, Marketing/ Training Specialist (cumrently assigned to IFDC-Albania). The team spent 3.5 weeks in Albania during the period August 3-27, 1993. The IFDC team was supported by a large number of Albanian counterparts who made valuable contributions to the team's efforts in Albania. These included the Vice Minister and other officials of the Ministry of Industry, Mineral Resources, and Energy; the Director and staff of the Lac factory; and representatives of the Albanian Copper Company; the Mineral Processing Research Institute; the Geologic Institute; and the Geological Enterprise of Gjirokastra. Valuable support was also received from the in-country offices of USAID and IFDC-Albania. The study was limited to the Lac SSP factory which is only a small portion of a very large industrial complex that embraces mining of pyrites and copper ore, ore beneficiation, copper smelting/refining, and mining of phosphates. Although these related industries were examined in the context of their relationship to the Lac SSP factory operations, a detailed analysis of thes, operations was beyond the scope of this study. However, it was generally concluded by the IFDC team that extensive modifications and capital expenditures would 2 be required to restore these industries to technically, economically, and environmentally acceptable operations relative to western European standards. The SSP fertilizer factory located at Lac is the sole phosphate fertilizer production unit in Albania. A previous study by IFDC for USAID in early 1992 indicated that the overall physical condition of the factory was not good but that it might be possible to continue operation if some of the factory units were renovated and modified. The Lac SSP factory began operation in 1966 (27 years ago) and was operated continuously under the former centrally planned political/economic system. Under this system, fertilizer production and use were not based on response to market factors but rather on limitations of raw materials and the ability of the factories to produce. Costs of production were not of serious concern, and the factories often deteriorated due to lack of provision of funds for maintenance and/or replacement of worn-out equipment. Unfortunately, as a result of this situation, the current technical and mechanical condition of the Lac SSP factory has deteriorated, and it is estimated that more than US $3.1 million would be required to restore to an acceptable operating and environmentally sound condition the plant units essential for the production of SSP at a rate of up to 80,000 mtpy according to a "best case" scheme. Conclusions As a result of this study, it is concluded that continued operation of the Lac SSP factory is not feasible due to: 1. The age and generally poor condition of the factory equipment. 2. The substantial amount of capital funds needed to bring the Lac factory to a good operating and environmen.ally acceptable condition in the context of the "best case" scheme plus the substantial amount of capital funds that no doubt will be needed to restore operation of copper smelting, pyrite mines, and beneficiation plants to an environmentally acceptable level. 3. The relatively high cost of sulfuric acid produced by the existing technology based on roasting of pyrites to obtain sulfur dioxide (S02). 3 4. The need to import phosphate rock. Use of Albanian phosphate rock is not feasible due to its low analysis and high cost. 5. The resulting high cost of production, i.e., the plant-gate cost for bagged run-of-pile (ROP)-SSP (containing about 18% P205) of 7,503 leks/mt product (41,680 leks/mt P205) versus a landed cost of imported, bagged diammonium phosphate (DAP) of 13,737 leks/mt (29,863 leks/mt P205) after credit is given for the nitrogen in the DAP.' 6. High distribution costs (P205 nutrient basis) resulting from the low P205 analysis of SSP compared with that of DAP which is 18% N and 46% P205. It is further concluded that: 1. Based on market requirements, the factory should be operated long enough to convert the existing stocks of pyrites, phosphate rock, and sulfuric acid to SSP. With the existing inventory of SSP (about 17,000 mt), a total stock of about 50,000 mt of SSP could be realized containing about 7,500 mt of P205. 2. Production of granular NPK grades at the Lac factory is not economically feasible. 3. Imported DAP is currently the most cost effective source of P205 fertilizer for Albania. 4. International bagged DAP prices must increase by about US $70/mt above today's prices (to a level of about US $220/mt f.o.b. producing country) before Lac-produced ROP-SSP can be competitive with imported DAP assuming no import duties. 5. Significant costs will be incurred in terminating the operations and work force at Lac and making the factory site environmentally benign. The ensuing discussions in this Executive Summary cover the technical and economic factors which provide the basis for the above conclusions. These factors are described in more detail in the main evaluation report. 'For the purpose of this report, US $1.00 is equal to 100 Lek. 4 Phosphate Fertilizer Supply and Demand in Albania Phosphate Fertilizer Demand Distribution (presumably equivalent to domestic consumption) of SSP in Albania in 1987 was approximately 174,000 mt (26,000 mt of P2Os). During the 1992/93 season, consumption of phosphate fertilizers was 18,584 mt of product of which 8,819 mt was SSP and 9,765 mt was diammonium phosphate (DAP) for a total of about 5,815 mt P205. It is expected that P205 consumption could possibly reach 10,000 mt during 1994. By 1999, the projected consumption of P205 is 12,800 mt based on an annual compounded growth rate of 5%. This amount of P205 is equivalent to 71,000 mt of SSP product as shown below: Projected SSP Demand, 1994-99 (Assuming No DAP Imports) Year I P205 SSP Product (18% P205) (mt) (mt) 1994 10,000 55,550 1995 10,500 58,330 1996 11,025 61,250 1997 11,575 64,300 1998 12,155 67,530 1999 12,763 71,000 Although it is understood that DAP would be a strongly competitive product to replace ROP-SSP, it is possible that all of the P205 requirements could be supplied by ROP- SSP produced by the Lac factory. However, comparisons made between Lac ROP-SSP and DAP show that locally produced ROP-SSP is not competitive with imported DAP. Phosphate Fertilizer Supply There are three sulfuric acid units of various capacities in the Lac factory and two SSP units. Each of the SSP units has a design capacity of 110,000 mtpy of product. During recent years, actual production from SSP-1 has consistently been more than design capacity as follows: 5 From SSP-1 ___ Annual Production Granular Year ROP-SSP SSP Total (mt) 1986 98,560 68,918 167,478 1987 114,241 60,531 174,772 1988 104,113 60,887 165,000 1989 110,152 55,035 165,187 1990 99,342 42,183 141,525 a. Granular SSP refers to ROP-SSP that was subsequently granulated. The SSP-2 unit was built in 1989 to use sulfuric acid from the No. 3 sulfuric acid plant (SA-3).