World Development, 1977, Vol. 5, Nos. 9110, pp. 853-866. Pergamon Press. Printed in Great Britain.

The Choice of Technology

in the Production of Fertilizer:
A Case Study of Ammonia and Urea
RICHARD DISNEY and H. ARAGAW*

Summary. - The need to increase agricultural production has led many underdeveloped
countries to produce industrial fertilizer domestically. A case study of the choice of technology
in the production of ammonia and a nitrogenous fertilizer, urea, in the context of India,
suggests that there is little scope for utilizing more labour in what is a highly capital-intensive
process. There is, however, a choice between increasing energy costs and capital costs, which
the Indians might exuloit to reduce foreign exchange requirements. The paper then examines
briefly some wider technological alternatives.

1. INTRODUCTION to substitute domestic production for imports,

particularly since the oil price rises of 1974
Despite recent questioning of the goals of which raised the cost of imported nitrogenous
the ‘green revolution’ agricultural strategies, it fertilizer by up to 300%. But the options open
is still generally accepted that agricultural deve- to India and others are few.
lopment in underdeveloped countries will re- It is the purpose of this paper to consider
quire a continuing rapid growth in the use of what latitude, especially in the choice of
industrially-produced fertilizer. This paper is technology, these countries have for reducing
concerned with the choice of technology in the costs involved.
underdeveloped countries with reference to the The plan of the paper is as follows. Section
nitrogenous fertilizer industry. Of the three II examines the character of the technology
major nutrients contained in fertilizer - nitro- used in the production of ammonia and urea,
gen, potassium and phosphate - nitrogen now and particularly the choice of inputs. It is
accounts for the largest share in world trade shown that the technological substitutability
and consumption. The use of nitrogenous ferti- does not in general extend to the use of more
lizer, especially of highly concentrated variants labour-intensive methods. Section III subjects
such as urea, is associated with the increased twelve technologies for making urea to a
acreage of new high-yielding varieties of wheat, detailed cost-benefit analysis at Indian factor
rice and other crops. The ability of consuming prices, and suggests that the technologies with a
countries such as India, Pakistan and Mexico to higher capital per man are more profitable at
maintain their supplies of nitrogenous fertilizer market prices. Section IV briefly examines
will therefore be crucial in determining whether some less conventional alternatives to the exist-
the output gains so far achieved will be main- ing technology, while Section V concludes the
tained. arguments.
Unfortunately, the production of nitro-
genous fertilizer is a highly capital-intensive
process, requiring the high temperature crack- II. THE CHOICE OF TECHNOLOGY IN THE
ing of hydrocarbons (such as natural gas, oil PRODUCTION OF FERTILIZER
and refinery products such as naphtha) or coal,
high pressure synthesis of the liberated hydro- Most underdeveloped countries are charac-
gen with nitrogen to form ammonia, and
various other consequent and equally complex * Richard Disney is a Lecturer in Economics at
processes to produce the various ammonia- the University of Kent, Canterbury. Hailu Aragaw is
based fertilizers. Most large consumers of nitro- working as a Technical Advisor to the Ministry of
genous fertilizer, such as India, are attempting National Resources, Ethiopia.

853
854 WORLD DEVELOPMENT

terized by, in varying degrees, a scarcity of The two known industrial methods of pro-
skilled labour, widespread unemployment of ducing ammonia are the Cynamide process,
unskilled labour, and a shortage of finance for which requires a series of involved reactions and
investment in capital equipment. The shortage which has been out of use since World War II,
of skilled labour is probably a more serious and the Haber-Bosch process, which is now in
bottleneck in Africa than in many Asian or general use. The Haber-Bosch process involves
Latin American countries; conversely, some the production of a gas mixture containing
African countries are able to obtain a greater hydrogen and nitrogen, the elements contained
per capita flow of aid or other foreign finance. in ammonia. While air is the source of nitrogen,
Here, we shall concentrate primarily on India. hydrogen, which is necessary to fix the nitrogen
Thus the development constraints encountered in a solid form suitable for use as a plant
are largely those of a shortage of capital and of nutrient, is obtained from a variety of sources.
foreign exchange, rather than of skilled labour. This variety produces a wide technological
Construction of a fertilizer plant involves choice.
substantial capital expenditure, much of it It is possible to look at this choice at each
requiring payments of foreign exchange, while stage of production. It should be noted, how-
economies of scale preclude development of ever, that the process as a whole cannot be
such an industry in small economies where considered purely by stages, since it is a
effective demand for fertilizer is limited. In characteristic of industrial flow processes that
addition, construction and operation of a ferti- maintenance of pressure and temperature re-
lizer plant involves the use of a certain mini- quirements involve the integration of the whole
mum of skilled labour. It is clear, therefore, plant. Nevertheless, the nature of this integra-
that the barriers to a feasible fertilizer project tion is illuminated by the study of each stage of
constructed in an underdeveloped country are the reaction.
considerable, and that India, with a large
market for fertilizer and a supply of skilled
labour, is fortunate by comparison with some (i) Gas preparation
countries. The initial sub-process requires the separa-
These barriers may be examined in more tion of hydrogen from the hydrocarbon feed-
detail by reference to the production of stock by the reaction of steam with naphtha or
ammonia and urea. Our starting point concerns natural gas (steam reforming) or of steam and
the choice of technology facing an under- oxygen with fuel oil or coal (partial oxidation).
developed country deciding to embark on the The resulting gaseous mixture contains nitro-
construction of such a plant. We leave aside for gen, carbon monoxide, some carbon dioxide,
the moment the question of producing some and hydrogen.
other fertilizer instead. It may be assumed that In the late 1940s and early 195Os, Shell and
the decision-maker in such a country would Texaco developed the partial oxidation process,
wish to minimize the capital requirements for using heavy fuel oil. Oxidation of the feedstock
such a project and by the same means maximize requires pure oxygen, and an expensive air
the employment of labour given an efficiency separation plant to be attached to the process.
constraint. We now describe the possible pro- It was this extra cost and the availability of
duction techniques for ammonia and urea and refining facilities that led ICI in the late 1950s
provide some comparison of costs for ammonia and early 1960s to patent naphtha steam
technologies. reforming, in which the need for pure oxygen
was eliminated. Now the naphtha feedstock and
steam were reacted in a primary reformer at
(1) Ammonia technology
high temperature and pressure over a nickel
Urea is composed of ammonia and carbon catalyst, while nitrogen was introduced by
dioxide. It is normal to find urea produced in heating air in a secondary reformer. The next
conjunction with ammonia at a single site, both development, which soon followed, was the use
to economize on storage and transport costs for of natural gas which was generally both cheaper
ammonia, and also because carbon dioxide is and easier to handle at the primary reformer
obtained as a by-product in the manufacture of stage instead of naphtha as the feedstock.
ammonia.’ Some designers are experimenting There are, therefore, two major process
with fully integrated ammonia and urea plants routes, and, in the case of steam reforming, an
in which certain key sub-processes at both the additional choice of feedstock. The actual
ammonia and urea production stages are com- choice is largely dependent on location, but the
bined. capital equipment for partial oxidation of fuel
 PRODUCTION OF FERTILIZER: AMMONIA AND UREA 855

oil is more expensive than steam reforming.2 At methods of producing ammonia. In recent
a more detailed level for this sub-process, a years, the Chinese have signed contracts to
choice exists between different kinds of re- purchase standard foreign steam reforming
former, for example, whether they are top- or technology to utilize the output of their new
side-heated and, since the gas is steam heated in oil and gasfields. Nevertheless, most existing
tubes, between different numbers, and designs facilities use coal as the feedstock, and produce
of the tubes. However, these choices involve ammonia by the ‘water gas’ method, in which a
little difference in capital or operating costs. carbon bed is alternately reacted with air and
Recently there has been a resurgence of steam to generate hydrogen. This process,
interest in processes utilizing coal, by a process which was once extensive in other countries, is
similar to the partial oxidation of fuel oil. The regarded by designers as cumbersome and tech-
Indians and South Africans have constructed, nically inefficient. On the other hand, the
or are constructing, ammonia plants which use reduced scale economies and higher labour
coal, while the South Africans are also investing input of this process, and the fact that the
substantially in a programme of producing oil Chinese seem to have experimented with, and
or gas from coal. In both cases, especially the improved, the technique, suggest that there
latter, the motives are partly political, involving may be benefits associated with maintaining an
the desire to avoid outside pressure exerted by obsolete technology. But it is doubtful whether
cutting supplies of oil. Nevertheless, the world the benefits of innovation and ‘learning by
oil price rise has led to a more general search doing’ would be reaped by other countries
for technologies utilizing coal. Unfortunately, re-establishing the older technology having
the capital costs of coal-using processes are phased it out previously in favour of modern
currently nearly double those using natural gas. designs.
Perry,3 after surveying the variety of technolo-
gies currently under investigation in this field,
concludes that if the United States were to (ii) Gas purification
utilize coal gasification rather than imported oil The next sub-process involves the removal of
(at post-1974 prices) for its gasoline require- carbon oxides which will otherwise poison the
ments, prices per gallon would rise from around catalyst used in ammonia synthesis. This is
35 cents to between 47 and 59 cents. Calcula- done by using selective absorbing liquids, such
tions by the authors based on figures ublished as water, potassium carbonate, and mono-
! ethanolamine (MEA), followed by methana-
by the Tennessee Valley Authority suggest
that if coal were priced at 210 a tonne, a tion, in which the remaining small percentages
coal-using plant would be competitive with of carbon oxides are reacted with hydrogen in
naphtha priced at &30 a tonne, but not natural the presence of a catalyst. Liquid nitrogen may
gas at 5230 a tonne. be used instead of hydrogen at this final stage
It is clear, therefore, that at this crucial stage in the partial oxidation process, as a con-
of the process a choice of technology exists, sequence of the need for an air separation
but that it is largely concerned with the choice plant. During purification, the gas temperature
of feedstock. From the point of view of an is considerably reduced.
underdeveloped country, there is very little, if The processes again differ not in labour costs
any, scope for the substitution of labour for but in capital and heating costs,’ which are
capital costs, and the conventional technology generally inversely related. Thus the potassium
(the steam reforming process) is cheapest in carbonate system capital costs exceed those of
respect of capital costs. If the underdeveloped the MEA system by around SO%, but MEA
country had a cheap supply of coal, lower requires perhaps twice as much heat to absorb
feedstock costs might outweigh higher capital the oxides successfully. Water absorption re-
costs, and if coal technology were used there quires no expensive chemicals, but has the
might, in principle, be some scope for the use highest capital cost. These differences in energy
of labour in handling activities, especially in costs illustrate the importance of considering
feeding the coal to the gasifier, whereas, of the plant as a whole, since steam generated by a
course, the other feedstocks would be provided chosen method of gas preparation, and choices
by pipeline. But this would not reduce the as to the method of gas compression and
capitalllabour ratio, since the probable doub- synthesis, will determine what heat is available
ling of capital cost would outweigh the employ- for this sub-process. The concept of the energy
ment of (approximately) up to two hundred balance of the ammonia plant is most impor-
extra workers. tant, and especially at the next sub-process: gas
Finally, mention might be made of Chinese compression.
856 WORLDDEVELOPMENT

(iii) Gas compression

For ammonia synthesis to take place, the
gaseous hydrogen and nitrogen must be com-
pressed. Two methods may be used. The first,
historically, used electrically-driven pumps to
compress the gas, while the other utilizes steam
from a previous stage of the process to drive a
turbine for centrifugal compression. Use of the
latter process requires a certain minimum scale
of production (around 200,000 tonnes of
ammonia per annum), since insufficient steam
is generated at smaller scales. In addition,
capital costs are increased by the need for extra
equipment, most notably a waste heat boiler
after the secondary reformer to extract steam
from the gas separation stage. On the other
hand, electricity costs are reduced enormously
by steam compression.
The choice of technology for gas compres- Input of 011

sion reflects the wider choice concerning the

energy balance of the ammonia plant. In the in the prod~rctior~ of~arntnorzia
196Os, growing demand for fertilizer and the Key: explained in the test.
low prices of oil and natural gas encouraged
companies to build large ammonia plants, using alteration in the choice of oil using technology
complicated steam systems to economize on (B”--B”). Further complications arise from the
external heat sources such as electricity. While feedback of oil prices on electricity prices, and
designers would still normally advocate the the fact that the higher oil price may lead to
modern plants for reasons of technical ef- biased technical progress against the use of oil
ficiency, the rapid increase in the prices of oil (i.e. a shift in the isoquant to X” X”).
and oil derivatives such as naphtha have hit We have not tested directly whether the
those producers who utilize them for steam plants using a greater electricity input are
generation and reduced the economic advantage currently more profitable, because it is difficult
of the newer processes. An underdeveloped to obtain current cost estimates for capital
country facing a budget constraint might prefer equipment of older vintages. In addition, the
to produce ammonia on a smaller scale, with direct implications for labour use of this choice
simpler steam recovery systems and lower are negligible. Nevertheless we may illustrate
capital costs, by utilizing the slightly older the impact of these economic and technological
technology. changes in the Indian context. A rough break-
At the risk of oversimplification, these alter- down of variable costs for twelve Indian
natives may be expressed diagrammatically ammonia producers was kindly provided to the
using the familiar neo-classical theory of pro- authors by SPlC (Southern Petroleum lndust-
duction. In Figure 1, we hypothesize that a ries Corporation Ltd.) of Madras. All but one of
broken6 isoquant X-X represents the two the producers used naphtha as a feedstock, but
major technologies existing in the 196Os, differ- while some producers used electricity or coal
ing in their uses of oil and electricity for steam for steam generation, the newer plants utilized
generation, and with other inputs held con- fuel oil or naphtha. We can rank these pro-
stant. At the ruling factor price ratio 11 A, ducers in order of vari‘lble costs per tonne of
reflecting the low price of oil, the chosen ammonia produced at prc-1974 oil and naphtha
technology minimizes the use of electricity. prices (respectively around 700 or 320 rupees
This actual choice induces biased technical per tonne) and current prices (720 and 590
progress, and the new isoquant X’--X’ which, rupees per tonne) and correlate this ordering
with the same price ratio A’ n’, depicts the with a rank ordering of the electricity used by
situation in the early 1970s. The oil price rise these twelve producers (kilowatt hours per
of 1974, however, shifts the factor price ratio. tonne). We would surmise in the light of the
The empirical question concerns whether this previous discussion that, prior to the oil price
shift has been great enough to induce a return rise, the older electricity- and coal-using pro-
to the 1960s technology with high electricity ducers would be those with the highest variable
input (B’ -R’), or merely induces a marginal costs, and this is in fact the case. Ranking the
 PRODUCTION OF FERTILIZER: AMMONIA AND UREA 857

producers in order of highest cost and highest lower capital costs and higher storage capacity.
electricity input, we obtain a rank correlation We assume here, however, that ammonia is
coefficient of 0.7920 at pre-1974 oil and not sold as a liquid, but immediately used in
naphtha prices. But at current prices, the rank the production of urea. There is, therefore,
correlation is -0.2990, suggesting that the need for only a small storage capacity, suf-
advantage of the newer technologies has disap- ficient perhaps to allow continued urea produc-
peared and that the older technologies might tion in the face of temporary halts in the
once again be feasible (although the coefficient production of ammonia.
is too small to be significant). Reverting to
Figure 1, we might infer that the shift of the
factor price ratio has been from A-A to B’-B’ (2) Urea
rather than B” --B”.
At this stage, the case for a reversion to the If ammonia and carbon dioxide are reacted
older technologies is not completely convinc- at high pressure and high temperature, a solu-
ing. But this would alter if the changing tion is formed with up to 70% urea content. By
environment leads to an improvement in the gradually lowering pressure and altering process
older technologies (the shift to x”-X” in temperature, constituents of the solution are
Figure 1). This is beginning to happen. The separated until a pure urea solution remains.
Indians are building several coal-using ammonia Evaporating off the water leaves a solid which
plants, which, despite higher capital costs, can be granulated or formed into prills - very
utilize more recent designs generated in the small granules formed as droplets solidify after
wake of the oil price rise. But research is also molten urea is sprayed into a tower and allowed
under way to design plants with simpler steam to fall.
systems, using far more electricity but with In practice, however, the process is very
reduced capital costs. The Dolphin Develop- much more complicated. A technical choice
ment Company in the United Kingdom has exists concerning what is done with the gases
designed an ammonia plant in which capital released by lowering pressure after the reaction,
costs are reduced by 12% although electricity and also as to, again, the use of heat in the
consumption is raised by 400%. The economic process.
viability of this process in relation to the
conventional process depends on the level of (i) Off-gases.. choice of recycles
capital charges relative to electricity prices. The The solution from the reactor contains
process also increases the input of naphtha or substantial quantities of unreacted ammonia
natural gas by l%, and this may be sufficient to and carbon dioxide, as well as urea and ammo-
outweigh the advantage in an area of high nium carbamate (the latter formed in an inter-
naphtha prices such as India. mediate reaction from which either urea and
water or a reversion to ammonia and carbon
(iv) Ammonia synthesis dioxide may take place). Simply maximizing
This sub-process has the least technical the conversion to urea through reaction and
choice. The necessity of high temperature and pressure reduction will lead to wastage of
high pressure to attain ammonia synthesis ammonia and, to a lesser extent, carbon
requires highly sophisticated equipment. dioxide. Since ammonia accounts for 60-70%
Current design differences involve different of production cost, this wastage should be
methods of temperature control in the con- avoided. Consequently, modern designs incor-
verter where the reaction takes place. However, porate recycle processes in which either all or
the use of organo-metallic oxides, which accele- some of the gases are recycled to the initial
rate reaction at lower temperatures, is being reaction for the production of urea. Recycling
investigated. involves an increase in capital costs since the
equipment is more complex, but a saving in
(v) Ammonia storage variable costs, namely the wastage of ammonia
Liquefied ammonia is obtained after synthe- and carbon dioxide. Four technologies may be
sis by reducing temperature and pressure. It distinguished:
liquefies at -33.4’C under atmospheric pres-
sure, or at 8.46 atm. at a temperature of 20°C. (a) the once-through process, in which no
Thus, it may be stored as a liquid either at high gases are recycled;
pressure and normal temperature, or refrige- (b) the conventional partial recycle, in
rated at normal pressure. The refrigerated low- which ammonia is recycled as decom-
pressure storage system is thought to have pression takes place by absorption into a
858 WORLD DEVELOPMEN?

higher pressure stream of reactor solu- (iv) Bagging and loading of urea
tion. As the absorptive capacity of this Urea prills or granules are conveyed from the
stream is limited, some ammonia is lost process or store by conveyors, elevated, passed
to the atmosphere; through a screen to eliminate oversize particles
(c) the CPI-Allied partial recycle design in and dropped to the bagging bin, where they are
which all the ammonia is recycled automatically weighed and measured into the
through the use of monoethanolamine bagging hopper. At this point, several alter-
(MEA) in absorption, but carbon native methods of bagging may be used.
dioxide is lost and degenerated MEA The most labour-intensive method, used
must be continually replaced; widely in India, involves manual clamping of
(d) the conventional total recycle, in which bags onto the chute from the bagging hopper,
the whole solution is re-heated and mechanical stitching of the bag (often operated
pumped back into the reactor. Although by footpedal) and transferring the sewn bags
all the ammonia is recovered, and no onto a conveyor. Bags are generally made of
expensive absorbing chemicals used, the jute with polythene liners in India; at one plant
circulation of ammonium carbamate the polythene liners were being made inside the
solution is extremely corrosive. factory but it is normal for these to be bought
from outside.
(ii) High pressure recycling An alternative semi-mechanized process,
Recycling the solution eliminates the need used in older plants in high wage countries, is
to maximize the initial conversion ratio of one in which the bags are automatically
ammonia and carbon dioxide into urea. clamped and welded rather than stitched. Plas-
Furthermore, by operating at higher tempera- tic bags are used, and labour is needed solely to
ture and high pressure, the water content of the return bags to the chutes and to check the
recycled solution is limited as is, more impor- operation of the process. In the fully mechani-
tantly, the formation of corrosive ammonium zed process, which is a recent development, the
carbamate solution. The technical solution is bags are manufactured on the conveyor, and no
somewhat complex, but takes the form of the operator is needed to return the bags. In this
‘stripping’ process, in which all the process process, a roll of polythene is automatically cut
takes place at high pressure and high tempera- to the correct size, the film is moved under the
ture, and the urea solution is separated by using chutes in a series of bag-shaped presenters, the
ammonia or carbon dioxide not only as an top edges cut straight, cleaned, heated, pressed
element of the reaction but as an agent for together, melted and cooled to be sealed. The
separating the solution. These processes also bags are then flattened and slid onto a pallet,
economize on heat and reduce corrosion. We whence they are transported by fork-lift truck
can therefore distinguish two further tech- to the storage area.
nologies: Adding these alternatives to the technologies
(e) total recycle stripping process using for producing the urea solution and the two
carbon dioxide, and methods of finishing would give 36 technolo-
(f) total recycle stripping process using gies. In the evaluation of the technologies in
ammonia. Section I11 below, however, only the most
labour-intensive bagging process was included
(iii) Ureu ,fi’nishing simply because no examples of the mechanical
The two methods of finishing, prilling and methods were found in operation in under-
granulation, were described briefly earlier in developed countries. Not only did this make
this section. Granules, being larger than prills, collection of data on these alternatives in
may be coated to slow down the release of conditions applicable to underdeveloped
nitrogen, and are less likely to solidify during countries difficult, but it also indicated that at
transporting. On the other hand, the capital this stage of the process at least, the most
costs exceed those for prilling (calculated here labour-intensive method was the sole process in
to be El 71,000 extra for a 1,000 tonnes per operation.
day plant), and slightly more steam and elec- Mechanical storing and loading involves the
tricity arc needed. Prilling is therefore generally use of fork-lift trucks, and drop-Licle wagons or
preferred, but, since it is claimed that granu- lorries onto which a pallet of 40 bags, or two
lated urea is a slightly superior product, we can tonnes, may be loaded. Again. in a country
compensate for the higher costs in the evalua- such as India, manual methods of storing or
tion in the next section by adopting a mar- loading are used. Conveyors are generally used
ginally higher price for the granulated product. to send bags to loading bays, but they are then
 PRODUCTION OF FERTILIZER: AMMONIA AND UREA 859

loaded by hand. The number of labourers practice. For a 1200 tonnes per day plant, for
needed will vary from plant to plant. In this example, assuming for the moment that all
study, we made estimates based on the average output is immediately loaded, 16 50- kilogram
turn-round of trucks and lorries in actual bags appear every minute. If there was only one

Figure 2. A summary of the choice of technology

in the production of ammonia and urea

Process Stage Choice Inputs affected

by choice

AMMONIA
Gas separation process route location and
capital costs
partian
oxidation reforming

cA1 fuJ oil ’

natural Naphtha capital costs
gas labour costs
\
(coal only)
design choice
\
nressure- capital costs
I
furnace
fiiin‘p and
tube pattern
(marginally)
design c&ts

Gas purification design choice capital costs

I \ energy costs
/
water potassium MEA others catalyst costs
carbonate

Gas compression steam system

capital costs
/ \
steam turbine electric pumps energy costs

Ammonia synthesis design choice

\ capital costs
converter pressure size (marginally)
design design costs

Ammonia storage pressure or temperature capital costs

scale costs

UREA
Urea synthesis design choice
capital costs
ype o?cyy pre+re design costs

once partial total conventional

through Or

stripping

Urea finishing product choice capital costs

marketing costs
phling gran>ation

Bagging and mechanization or manual capital costs

loading labour costs
860 WORLD DEVELOPMENT

loading bay, a 5 tonne lorry (i.e. 100 bags) and maintenance of secrecy is necessary to
would be loaded every 6% minutes. Since the preserve the economic rent associated with
average turn-round time observed was approxi- their ownership. The market for construction
mately 45 minutes, it may be calculated that of urea plants is also oligopolistic, and detailed
seven loading bays are needed, and one bag is cost specifications are therefore kept to a
loaded in each bay by two people in each bay minimum by contractors outside their contrac-
(one removing from the conveyor, one stacking tual agreements. The major sources of data in
on the lorry) every 26 seconds. A minimum of this study comprise technical journals, a
42 loaders will be needed, assuming a three- number of urea producers in the United King-
shift day, plus supervision, storekeepers, dom, Holland, India and Pakistan, the Tennes-
cleaners, and so on. By similar calculations, a see Valley Authority, the Fertilizer Society in
two-bay loading depot, employing 24 people London, and the Fertilizer Association of India.
could load a 25 tonne railway wagon every The technical literature was used to select
hour. The actual number of loaders for a 1,000 the range of technologies in this analysis and
tonne per day plant was assumed to be 49, and the choice of scales of operation. Costs refer to
this compares with actually observed totals in an average of Indian conditions. Capital costs
three Indian plants of 48, 52 and 72. Again, were obtained by matching comparative costs
only the manual method was taken into of technologies in the literature and equipment
account in the evaluation in the next section, specifications to detailed itemized cost break-
although the theoretical choice of technologies downs gleaned from various producers.7 Other
for the whole urea process has now risen to 72. costs, with the exception of ammonia costs,
were based on actual costs encountered in
(v) Summary of choice of‘ technology: India. The procedure of averaging these obser-
ammonia and urea vations is unsatisfactory for some cost compo-
The choice of technology, and in particular, nents, such as labour costs, since the average
the ‘choice variables’ for each stage of the conceals a wide variations However, labour
process, are summarized in Figure 2. It should costs account for less than 1% of unit costs,
be noted that only at two stages, the bagging and the significant costs, such as raw material
and loading, and, to a minor extent, at gas inputs, show less diversity.
preparation when coal is used as the feedstock,
is there any scope for directly expanding
(2) The timing of‘ costs and benefits
employment. At other stages, where there is a
choice, it rests between increasing capital costs The method of evaluating the technologies
or energy costs. ln the next section, we adopted in this analysis is that of discounted
examine the choice of technology for urea, for cash flow (DCF) and specifically the Net
12 of the 72 variants, and evaluate them at Present Value (NPV) method of comparing
prices corresponding to a rough average of projects at various discount rates. The evalua-
Indian prices. A similar detailed analysis is not tion assumes that, once operating at maximum
undertaken for ammonia, since it is clear that attainable capacity (90%) in year 7, the project
the major factor influencing the choice of operates for 20 years at that capacity, except in
technology is location, and other influences year 17, when the plant is shut down to 50%
(such as different energy systems) have already capacity for replacement investment (equiva-
been compared. Nevertheless, a price of lent to half the original capital cost). Initial
ammonia is needed as the urea feedstock, and capital investment is spread over years 1 to 3,
its calculation is described in Section 111, part 4 and capacity use of 20, 40 and 80% is attained
(i). in each of years 4 to 6 respectively. These
assumptions would be regarded by contractors
as excessively pessimistic, and by others as
Ill. AN ECONOMIC EVALUATION OF optimistic. Merrett found. for instance, that the
UREA TECHNOLOGY operating rate for nitrogenous fertilizer plants
in India averaged only 72.3% from 1949 66.9
( 1) Sources of‘ data It was felt that these estimates represented a
fair compromise between the observed lower
Detailed economic analysis of urea produc- capacity utilization rate in less-developed
tion is hindered by the extreme secrecy main- countries in the fertilizer (and other) industries,
tained in this industry. Variations between the and the probable improvement in efficiency
technologies arise from a limited number of resulting from ‘learning by doing’ in the lndian
design differences. These designs are licensed, context.
 PRODUCTION OF FERTILIZER: AMMONIA AND UREA 861

(3) Scale price of ammonia. A simple solution would be

to take an average price of ammonia for India
Three scales are considered: a 600 tonnes and apply this to all three scaies of production
per day plant (assumed to be only 198,000 for urea. But it was felt that an ammonia price
tonnes per annum allowing for normal main- calculated in this way might not reflect the
tenance shut-downs), a 1,000 tonnes per day diversity of technology and input costs found
(330,000 tonnes per annum) plant, and a 1,600 elsewhere, and would certainly ignore the very
tonnes per day (528,000 tonnes per annum) important influence of scale on unit costs.
plant.’ O These would be attached to ammonia Therefore we took a range of five prices for
plants of, respectively, 350, 600 and 1,000 each ammonia feedstock from around the
tonnes per day, except the once-through and world. Ammonia prices per tonne can be
conventional partial recycle technologies, when calculated from these by means of graphical
the ammonia plant would be bigger (see Table relationships of input prices to ammonia prices
I). using least-cost technology published by the
Tennessee Valley Authority in its World Fertili-
zer Market Review. In turn, averages of these
(4) Urea process inputs prices excluding the extreme observations were
estimated for each scale. The mean ammonia
Table 1 depicts the inputs required to costs per tonne obtained were &70 for a 350
produce one tonne of urea solution, and the tonnes per day plant, &55 for 600 tonnes per
investment cost of the different technologies at day plant, and E40 for a 1,000 tonnes per day
mid-l 975 prices (all other costs in the DCF plant. The difference stems not only from
analysis apply to the same date). The prices of economies of scale in capital, overheads and
the other inputs are derived as follows. labour but also, in the case of the 350 tonnes
per day scale, from the higher costs normally
(i) Ammonia associated with using electricity power rather
We have already stated that we did not than steam turbines, as described in Section II,
undertake a full DCF analysis to determine the (1) (iii).

Table 1. Choice of technology: production of urea solution

Input Once- Partial CPI- Total Carbon Ammonia

through recycle Allied recycle dioxide stripping
stripping

Investment cost
(mid-1975 prices)
1,000 t.p.d. plant
& mitlion: 6.892 8.798 8.991 9.591 IO.344 IO.587
Process Inputs
per tonne urea

Ammonia (tonnes) 1.07* 0.17 0.58 0.58 0.58 0.58

Carbon dioxide
(tonnes) 1.02 0.83 0.83 0.77 0.76 0.76
Power (kWh) 180 160 200 160 130 130
Steam (tonnes) 1.1 1.35 1.5 I.5 1.1 1.0
Cooling water
(gallons) 3000 14000 20000 30000 20000 19000
MEA solution
(tonnes) _ _ 0.001 _ _

‘Sources: Estimates based on figures provided by contractors and licensers.

See also: UNIDO Fertilizer Manual (United Nations, 1967); A. V. Slack and G. M. Blouin, Urea
Technology: A Crtical Review (Tennessee Valley Authority, 1969); and, especially for calculation
of investment costs (which refer to a plant built in a country such as India), R. Disney and H.
Aragaw, The Choice of Technology in the Production of Ammonia and Urea (David Livingstone
Institute, University of Strathclyde, United Kingdom, mimeo, September 1975).
* Lowest estimate, assuming 55% conversion to urea
862 WORLD DEVELOPMENT

(ii) Other process inputs exact calculation of the minimum required

(a) Electricity was estimated to cost &0.005 number of process workers is difficult and,
per kWh. This is on the low side, but a given the small contribution to unit costs,
number of Indian plants seemed able to unnecessary.’ ’ Observation suggested that a
obtain electricity at subsidized prices. typical total recycle plant of around 1,000
(b) Steam was valued at 53.50 per metric tonnes per day employed 58 people, excluding
tonne, based on the observed costs of bagging and loading, at wages varying from
using fuel oil to raise steam, and taking El,320 per annum for a plant manager, to &300
the current averag, price for fuel oil in per annum for a semi-skilled machine operator.
India. Raising steam by using coal would Once-through and partial recycles employed
now be slightly cheaper. slightly less labour, while substituting granula-
(c) Water was costed at LO.02 per 1,000 tion for prilling raised employment slightly. A
gallons. labour scale factor of 0.2 was also assumed;
(d) MEA was valued at &500 per tonne, although there is no technical reason why a
based on United Kingdom prices plus large plant should employ more process labour,
estimated transport costs. it was observed that this was in fact the case.
(e) Carbon dioxide was assumed to be a free There were no economies of scale of labour use
by-product of the ammonia plant. in bagging and loading labour, and calculations
for 600 tonnes per day were made in similar
fashion to that for the 1,000 tonnes per day
(5) The price of urea plant described in Section II, (2) (iv). The
sources of these figures were observations of
We assumed that the price of prilled urea actual practice in Indian plants, and calcula-
was 280 per tonne, and granulated urea &81 per tions based on data in the IJNIDO Fertilizer
tonne. The prilled price was chosen as being iZilanua1 referred to previously. Observation
roughly equal to the current price at that time further suggested that a rough average of likely
in India net of the pool levy,’ ’ and the overheads and maintenance charges would bc
granulated price was slightly higher to allow for E450,OOO per annum irrespective of plant type
the improved characteristics of the product as or size. Finally, it was assumed that the wage
well as the higher costs of production. bill would rise by 5% in real terms each year
This is not an entirely satisfactory solution throughout the project life, since most plants
to the problem of estimating the price of urea. operated some form of incremental wage struc-
Some attempt should be made to calculate the ture.
price in relation to world prices, but the world
price is impossible to calculate given the variety
of selling conditions (open market, long term (7) Cupital costs and economies
contracts, or barter arrangements). In India, as of scale
in most other underdeveloped countries, fertili-
zer prices are controlled such as to ensure an The investment costs for the various tech-
adequate (usually 10 -15%) rate of return on nologies have been described in Table 1. In
investment. Clearly the Indian method of fixing addition, the costs of the bagging and loading
prices was not helpful in the context of this section were added (El.28 million for 600
DCF analysis, since a mark-up on costs would tonnes per day, El.6 million for 1,000 tonnes
not enable us to distinguish the NPVs of the per day and 22.08 million for 1,600 tonnes per
various technologies. Taking the Indian price as day) plus 1% of total capital cost for an initial
it stands without relation to costs therefore stock of spare parts. Observations, and the
allows us to rank the technologies, which is the literature,’ 3 suggested that scale-up factors of
main aim of the analysis, but not to judge the 0.65 for all equipment except the prilling tower
absoute NPVs in comparison with other pro- (0.5) and buildings, electrical work and instru-
jects. mentation (0.3) were realistic, giving an overall
scale factor for capital costs of 0.53. This, it
should be noted, is an identical result to the
(6) Labour costs, ol’erheads and rnairttenance so-called ‘two-thirds’ rule of scaling in engineer-
ing, as described by Pratten.’ ’
Labour costs for the whole urea process,
including bagging and loading, comprise only
1% of unit costs, while maintenance and over- (8) Packaging materials
heads contribute between 2 and 5’$, depending
on the scale. Given the nature of the industry, Indian data suggested that the jute and
 PRODUCTION OF FERTILIZER: AMMONIA AND UREA 863

polythene bags cost around 20.25 each. Assum- results are sufficiently close to merit
ing the bags are non-returnable and 5% losses underdeveloped countries look?! at
during loading, the number and value of bags such slightly simpler technologies.
needed for each scale can easily be calculated. (3) The results, as with the description of
ammonia technology summarized in
Figure 2, suggest that treating complex
(9) Tax laws industries of this type in terms of the
conventional capital-labour trade-off is
It was assumed that there was a five-year tax not very useful, and that location and
holiday, a 5% depreciation allowance, a 50% energy costs are, if anything, more
profits tax on all remaining years after the important. This conclusion would sur-
deduction of depreciation, and that tax was prise a technologist far less than an
paid one year in arrears. Thus in year 27, there economist!
was a negative cash flow, only partly offset by (4) The results for different scales indicate
sale of stocks of working capital. that a country would be advised to build
as large a plant as possible within its
budget constraint, in order to reap the
(10) Working capital benefits of substantial economies of
scale. But such finance might not be
It was assumed that one month’s advance forthcoming, unless at higher interest
wage bill plus overheads and maintenance was rates (which could be incorporated in
needed, and a declining stock of ammonia as this analysis by raising the discount rate
production achieved 90% of capacity. The value for higher capital sums). In part, too,
of the continuing stocks was recovered in year this conclusion as to the advantages of
27. larger scales relies heavily on the price
differentials for ammonia; if ammonia
could be produced cheaply on a small
(11) The results scale, then a smaller urea plant would be
more profitable. But China has experi-
Table 2 shows the outcome of this DCF mented with small-scale partial oxida-
analysis. Some salient points are as follows: tion ammonia plants and these appear to
be relatively high-cost, since she is plan-
(1) The technology and scale with the ning to replace them with 3,000 tonnes
lowest capital per man, namely the per day urea plants constructed with
1,000 tonnes per day once-through American aid.
process with granulation, has one of the
lowest present values; indeed at a 20%
discount rate, the NPV is negative. IV. WIDER ALTERNATIVES
The scale and technology with the
highest present value is the 1,600 tonnes This section briefly sketches some wider
per day ammonia stripping process with choices.
granulation which has the second
highest value of capital per man.
(2) The poor results of the once-through (1) Electrolysis of water
process and the conventional partial
recycle show that the cost of ammonia Although there are no alternative methods
is a more crucial determinant of profita- of making urea, the use of hydrocarbons in
bility than capital costs. The other four producing hydrogen may be by-passed by using
solution technologies have very similar water electrolysis, in which a current of elec-
present values; the carbon dioxide strip- tricity is passed through water, separating water
ping technology generally does best, and into its constituents of hydrogen and oxygen.
indeed this is the technology in widest While nitrogen must be purchased, or obtained
use currently, suggesting that the tech- from an air separation plant, the need for a gas
nical choice in underdeveloped countries purification stage is eliminated.
has not been ‘inappropriate’ in this field. Only two plants .are thought to exist using
On the other hand, although the CPI-- this technology. A plant in India is located near
Allied process is now generally regarded a major hydro-electric scheme, and receives
as obsolete, it would seem that the power at around one-fifth of the cost caldulated
 Table 2. The choice of technology in the production of urea
NPV in & million

Process 600 tpd 1000 tpd 1600 tpd

Capital NPV NPV Capital NPV NPV Capital NPV NPV

per man at 10% at 20% per man at 10% at 20% per man at 10% at 20%

Once-through: Prilling 44,199 negative negative 42,543 3.91 negative 50,422 42.11 15.36
:Granulation 42,103 negative negative 41,793 4.53 negative 49,225 43.90 15.74
Partial recycle:
: Prilling 53,318 2.05 negative 52,370 22.45 6.13 60,564 64.57 24.29
:Granulation 51,226 2.60 negative 51,253 23.01 6.34 60,105 65.70 24.61
CPI-Allied:
: Prilling 54,548 11.09 1.75 53,517 34.13 11.69 61.647 76.48 30.37
:Granulation 52,392 11.64 1.86 52,353 34.75 11.90 61,152 77.61 30.75
Total recycle:
: Prilling 55,940 11.10 1.55 55,157 34.16 11.51 63,433 76.60 30.40
Sranulation 53,321 11.66 1.66 53,969 34.78 11.72 63,151 11.13 30.78
Carbon dioxide stripping
: Prilling 60,011 11.95 1.70 59,451 35.39 11.74 67,832 79.29 31.05
:Granulation 57,212 12.50 1.81 58,096 36.01 11.95 61,422 81 .Ol 31.43
Ammonia stripping:
: Prilling 61,365 11.88 1.62 60,847 36.10 11.97 69,628 79.88 31.06
:Granulation 58,556 12.43 1.73 59,439 36.72 12.18 68,815 81.01 31.44
 PRODUCTION OF FERTILIZER: AMMONIA AND UREA 865

for this study. The enormous electricity re- costs are unavailable, and the return to such
quirement, however, plus the greater capital fertilizers in terms of yield increases is difficult
cost,r6 raises the costs of producing ammonia; to quantify.’ *
our calculations suggest that for the three scales
used in this study, the costs would be &83 per
tonne for a 350 tonne per day plant, 277 for a (4) “Gobar-Gas” fertilizer
600 tonne per day plant, and &73 for a 1,000
tonne per day plant. At the electricity costs An imperfect substitute for nitrogenous fer-
actually used in this study, the costs would rise tilizer is manure, which contains a small nitro-
to, respectively, El34 per tonne, El29 and gen proportion. The Indian government is
2125. Although cheap electricity made the currently encouraging farmers to install the
electrolysis plant viable in India, the fact that so-called ‘gobar-gas’ plant, a small gas-generator
the provincial authority controlling the power utilizing cow-dung to produce methane as and
supply could sell electricity at a higher price to 1$ How-
a slurry containing 1.5-2.0% nitrogen.
other users meant that the ammonia plant was ever, a detailed comparison of this process with
often forced to operate at a low level of conventional fertilizer, utilizing the nitrogen
capacity utilization. content as the basis of comparison, suggests
that while larger village ‘gobar-gas’ plants have
the edge in terms of cost under certain assump-
(2) Future alternatives tions, the small family plants being subsidized
by the Indian government are uneconomic, and
Investigation of alternatives to the Haberr do not attain the social objectives with which
Bosch process is being undertaken, particularly such ‘small scale’ technology is associated.’ ’
in the United States. These include the search
for catalysts which allow low pressure ammonia
synthesis, producing nitric oxides instead of
ammonia, and ionization of air. None of these V. CONCLUSION
are yet commercially viable.’ ’ Current research
into reducing the costs of coal gasification may This paper has suggested that agricultural
be more immediately relevant for under- strategies pursued by certain underdeveloped
developed countries. countries have led to a rapid increase in demand
for nitrogenous fertilizer. The oil price rise has
forced many of these countries, notably India,
(3) Alternative fertilizers to develop their own nitrogenous fertilizer
industries. These industries are highly capital-
There is no space for a comparison of the intensive and rely on imported equipment.
production and use of urea with other nitro- A detailed evaluation of the choice of
genous fertilizers such as ammonium nitrate, technology for producing ammonia and urea
sulphate and phosphate, which requires know- suggests that although there is a wide range of
ledge not just of the technologies, but also of technology available, there is little scope for
the exact crop response to the different fertili- substituting labour for capital. Indeed those
zers. However, we may say that all nitrogenous technologies with the highest capital per man
fertilizers currently involve the intermediate are the most profitable at Indian prices. There
production of ammonia, and, except urea, of an is, however, a possibility of saving capital costs
acid such as nitric or phosphoric acid. They are at the expense of energy costs, both in
unlikely, therefore, to provide any more scope ammonia and urea production.
for labour-intensive methods of production, but Finally, the wider choice was described
to require the same, largely imported, tech- briefly, including other fertilizers, current tech-
nology. nical developments and, at the other extreme,
China has also experimented with other the use of local inputs such as manure. The
fertilizers, including organic fertilizers such as viable alternatives would seem to be village
‘ammonium humate’ and simple inorganic ferti- ‘gobar-gas’ plants, while new methods of coal
lizers such as ammonium bicarbonate and aqua gasification and low pressure synthesis may
ammonia. But estimates of relative production become valuable to underdeveloped countries.
866 WORLD DEVELOPMENT

NOTES

1. The Indians have considered the possibility of 10. All tonnes are metric tonnes, and all values in the
importing ammonia produced in Iran and establishing DCF analysis are converted from rupees to pounds at
a site to produce ammonia-based fertilizers. Nothing the 1975 exchange rate.
has come of this proposal and we ignore it in this
evaluation. 11. The government adds a levy to domestic fertilizer
costs to finance imported fertilizer in the government
2. Estimates of the difference vary according to budget.
technology, time period and location. A rough guide
would suggest that naphtha reforming is 10 -20% 12. Further analysis of this problem is contained in:
more expensive than natural gas reforming, and partial S. Merrett, ‘Snares in the labour productivity measure
oxidation of fuel oil 30&60% more expensive, when of efficiency: some examples from Indian nitrogen
capital costs alone are considered. fertilizer manufacture’, Journal of Industriul Eco-
nomics (November 1971).
3. H. Perry, ‘Coal conversion technology’, Chemical
b’ngineering (22 July 1974), pp. 88-102. 13. See, for instance: A. J. Payne and J. A. Canner,
‘Urea: process survey’, Chemical and Process Engineer-
4. Tennessee Valley Authority, World Fertilizer ing (May 1969).
Market Review and Outlook 1974 (Muscle Shoals,
Alabama), p. 24ff. 14. In: C. I:. Pratten, Economies of Scale in Manu-
facturing Industrv (Cambridge: 197 l), p. 4 1 ff.
5. See, especially, J. H. Garvie, ‘Synthesis gas manu-
facture’, Chemical and Process Engineering (November 15. The ranking of the four solution technologies
1967); and J. A. ITinneran, ‘Advanced ammonia other than the once-through and conventional partial
technology’, Hydrocarbon Processing (April 1972). recycle is also sensitive to the inclusion of interest
charges on capital costs.
6. We assume that indivisibilities rule out combina-
tions of the technologies in the intervening space. 16. Since this particular plant was built 15 years ago,
exact calculation of capital costs is difficult, but they
7. The exact capital costs used are detailed in R. seem to be around 250% of those for natural gas
Disney and Il. Aragaw, The Choice of Technologv in steam-reforming.
the Production of Ammonia and Urea (David Living-
stone Institute of Overseas Development Studies, 17. See D. R. Safrany, ‘Nitrogen fixation’, Scientific
1975), p. 55. The derivation of other costs is also American (October 1974).
given in the same source.
18. I:ertilizer technology in China is referred to by
8. Monthly earnings for a machine operator ranged several authors including Jung-Chao Liu, ‘t:ertilizer
from 200 to 1,000 rupees per month in different application in Communist China’, China Quart&f,
Indian plants. The wage used here for this category is No. 24 (October-December 1965); and Kang C’hao,
approximately 450 rupees per month. ‘The production and application of chemical fertilizers
in China’, China Quarterl~~, No. 64 (October---
9. S. Merrett, ‘The growth of Indian nitrogen ferti- December 1975). See also the Peking Review for 8
lizer manufacture: some lessons for industrial plann- August 1975 and 21 January 1977.
ing’, Journal of Developntcnt Studies (July 1972), p.
402. He also found an average delay between go-ahead 19. See <‘. R. Prasad, K. Khrishna Prasad and A. K. N.
and the start of erection of 20 months and the start of Reddy, ‘Bio-Gas plants: prospects, problems and tasks’
erection and on-stream operation of 48 months. These Economic and Political Weekl.tB (Bombay, August
averages again conceal a wide variation. with total 1974); and N. Jequier ted.) Appropriate Technology:
delays for one or two plants of up to 100 months. Problems and Promises (Development Centre, Organi-
Bureaucratic delay and prolonged negotiations are an zation for Economic Co-operation and Development,
uncertainty which cannot be quantified in this analy- 1976), pp. 182-m188.
sis!
It should also be noted that underutilization of 20. R. Disney, ‘The economics of “gubar-gas” versus
capacity raises unit costs, and low capacity use in the fertilizer: a critique of intermediate technology’,
ammonia section will raise actual urea costs above Dcvclopment and Change (January 1977).
design costs.