TBY talks to Brent Heimann, President & CEO of Arab Potash Company (APC), on Aqaba industrial port, overseas supply agreements, and increasing revenue in 2019.

APC is the sole producer of potash in the Arab world. What have been the major achievements and milestones for Arab Potash Company over the past year?

Over the past year, we have done a significant job of reducing our costs by improving our energy mix. The price we were paying for electricity was probably two to three times more than most of our competitors; therefore, we have installed a gas turbine and we have built a gas pipeline that allows us to get gas from the Mediterranean. We have a 15-year agreement with Noble Energy; this was key in reducing our costs and staying competitive. Our annual electricity bill prior to all this was about JOD70 million, or over USD100 million per year. We have slashed that by 60-70%, and most of that we have done over the past one to two years. Two years ago, we were in the top quartile in terms of cost per ton to produce potash. There are only ten countries producing potash, so we were one of the highest cost producers. We are still working to keep optimizing our costs, which has been important in a somewhat oversupplied, but still a growing, market. In 2018, we also broke ground on our project to augment production capacity by an additional 180,000 tons per year. It is a three-year project because it requires a lot of construction to bring those new tons online. We were extremely pleased that we approved that project in 2018 with our board and started moving forward. This expansion is almost a 10% increase in our capacity.

What progress have you made regarding exploration in the Lisan area?

That is a sticky issue because we have been working with the government for the past four years to start exploration there. It is the future for the company, but there have been a lot of road blocks along the way. Since we proposed this idea to the government, there has probably been four different energy ministers and four Prime Ministers, numerous times we have to start over with building the partnership. Furthermore, there is also not a full understanding of what this could mean to the company and the country if we were to incorporate this into our process. Of course, there are no guarantees the Lisan has a potash reserve that we can use, but until we do the exploration, we do not know. We have offered to pay up to USD16 million for that exploration and are optimistic that we are getting closer to being allowed to do the exploration with the cooperation of the government.

How does the development of Aqaba industrial port fit into your expansion, and what are your largest exports markets?

We have a JOD115 million joint venture project in the industrial port in Aqaba. We have 50-50 with Jordan Phosphate Mines Company. This will facilitate increased and more efficient exports by both companies. This project replaces some ageing infrastructure, and we are building it large enough to accommodate bigger shipments in the future. The main markets that we export to are China, India, and Southeast Asian countries, mainly Indonesia and Malaysia. Our growing markets in the region are Egypt, Saudi Arabia, and Jordan. In Africa, we see significant population growth and, thus, increased food demand—an important driver of fertilizer and potash demand. Of all potash suppliers, we are probably in the best position to supply east and south Africa. We do have some exports to Europe, but China and India together are about 55% of our business, so the biggest portion is going east. This is largely through our supply agreements with Sinochem Macao and IPL in China and India, respectively. We have worked with Sinochem for 25 years and IPL for 20, and we just renewed annual contracts with them.

Can you tell us about your strategy and expansion plans to enter into downstream industries?

At present, we have two highly successful downstream industries. The first is Jordan Bromine, which is a 50-50 JV with an American company, Albemarle, and we just completed an expansion project for it. Then, there is KEMAPCO, which makes potassium nitrate, a specialty fertilizer that has a premium over what we sell which is more of a commodity fertilizer. They just underwent a small expansion from capacity of 130,000 tons per year to 170,000 tons, but we would like to double that capacity to 350,000. We are studying that, and hopefully, we will take that to our board in 2019.

What is your outlook for 2019?

We believe 2019 is going to be an improvement over 2018 in terms of sales price and revenue. Volumes will be about the same, and we are essentially selling everything that we can make, which is about 2.3 million tons per year. We are committed for half of 2019 already, and the second half should not be a problem. Most of the prices have been increasing in 4Q2018, and since China and India are one-year contracts, all of that is going to carry into 2019. Our other contracts are more often negotiated on a per-sale or per-quarter basis, and they are almost all higher than China and India. So we have a good outlook for next year, and beyond that, our only concern is some new capacity that coming on to the market that will add to the supply side. There are new mines in Russia and Canada that are coming on, and as long as demand continues to grow, it will be easier to absorb the market and maintain the prices that we have. If it comes on quickly, it could keep the prices from going any higher. But, that remains to be seen and likely will not happen in 2019. I think 2019 is going to be a good year for our company and our industry. Another thing that is important to us is giving back to the community. Jordan is not a rich country; we do not have oil and gas. Our company operates in the Jordan Valley, which is one of the poorer parts of the country. Thus, it is extremely important for us to give back to the community in terms of jobs and through our CSR initiatives. Over the last five to six years, we have on average allocated between JOD8-10 million per year for CSR programs, which is sometimes as much as 10% of our net income.