Monday, May 20, 2024
BusinessHuge loss incurred as fertilizer stocks languish at port

Huge loss incurred as fertilizer stocks languish at port

  • Over 370k quintals of fertilizers unused due to quality problems

Unclaimed stocks of fertilizers that was supposed to be transported to the hinterland remains accumulated at the Port of Djibouti for three years, leaving the nation liable for extra cost, including demurrage, interest rate and penalty fees amounting to over 572 million birr, and counting, according to the Ethiopian Agricultural Works Corporation.

During a meeting the Public Enterprises Affairs Standing Committee of the House of People’s Representatives called on Wednesday and that brought together officials from the Ministry of Agriculture and Natural Resources (MoANR), the Agricultural Transformation Agency (ATA), unions and others engaged in the fertilizer business, serious challenges facing the sector that needed urgent action by the government were discussed.

On the occasion, corporation officials indicated that over 100,000 quintals of fertilizers have been stored for at least three years, and expressed their fear that stocks procured with huge sums of hard currency would  expire unless prompt action was taken.

Corporation CEO Kefyalew Birhanu told members of the standing committee that his corporation was incurring “unnecessary expenditure due to lack of regulation and directives”.

According to the CEO, the corporation in 2015/16 had made over 216 million birr payment to banks in interest and penalty fees alone.

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He further indicated that due to poor market system and finance regulation, the corporation spent a total of 572 million birr over the past three years mainly on fluctuation rate, bank interest and penalty fees. “We made the payment without our interest. We were forced to do that because of the unfavorable situation that the system had brought,” Kefyalw said.

The corporation is mandated with the importation of fertilizers mainly distributed to Amhara, Tigrai, Oromia and the Southern Regional States.

The CEO said that repeated failure and negligence on the part of regions to make payments in time for fertilizers was the main challenge that exposed the corporation to unnecessary cost.

“Normally, regions place orders for fertilizers through the Ministry of Agriculture [and Natural Resources] whereas the corporation makes purchase on behalf of them. However, the challenge is one region may make partial payment for what it ordered and yet another one fails to do in time. As such, we are not able to settle our accounts with the banks in the form of LCs. This makes us to incur extra costs like soaring interest rates and penalty fees,” he said.

Instead of pointing his finger at regional states, Kefyalw rather slammed the existing financial expenditure and management of the country.

He pointed out regions may not be able to secure funds in such time that would allow them to spend on what they want to acquire, while sometimes they may not access the required funds for various reasons, like not being able to acquire the finances in the budget year.

Underlining that the corporation keeps paying a huge amount of hard currency for fertilizers which are accumulated at the Port of Djibouti in demurrage, penalty fees, etc., he warned that “this huge outlay cannot be avoided unless the existing system is revised and improved”.

According to the corporation, over 190,000 tons was currently stored at the port even three years after the time of purchase.

In addition, 180,000 tons of fertilizer mainly boron and zinc have been stocked in warehouses across the country.

An official from the corporation, on his part, underscored the major challenges. He said that scheduling procurement is a major hurdle that is affecting the market, which includes the fluctuation of the demands of regional markets.

According to the official, the other “basic problem” is related to determining the right demand [of fertilizers] when requests come from regions or end-users.

He also noted that the challenges that the corporation is facing descended from years and existed before it was established.

Citing practical cases to support his narration, the official noted that for instance, in 2013/14, over 62,000 quintals of boron fertilizers had been purchased but only 37,000 quintals of it were taken by customers, though the remainder was later distributed to regions.

He further explained the problem then was that regions at the time found the boron different from what they had placed orders on. The boron was supplied by Yara, but it had not been as per the specification it had been ordered. This eventually caused a dispute with Yara, and the latter was temporarily blacklisted.

According to the ministry and the corporation, besides the 190,000 quintals accumulated at port, some 180,000 quintals of fertilizers (mainly boron and Zinc) have been stored in the country after regions refused to take them due to efficiency-related problems.

The other main problem that was mentioned was shortage of foreign exchange.

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