107.

PROFILE ON PRODUCTION OF LIME

107-2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

107-3

II.

PRODUCT DESCRIPTION & APPLICATION

107-3

III.

MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY B. PLANT CAPACITY & PRODUCTION PROGRAMME

107-4 107-4 107-6

IV.

RAW MATERIALS AND INPUTS A. RAW & AUXILIARY MATERIALS B. UTILITIES

107-7 107-7 107-7

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

107-8 107-8 107-9

VI.

MANPOWER & TRAINING REQUIREMENT A. MANPOWER REQUIREMENT B. TRAINING REQUIREMENT

107-11 107-11 107-12

VII.

FINANCIAL ANALYSIS A. TOTAL INITIAL INVESTMENT COST B. PRODUCTION COST C. FINANCIAL EVALUATION D. ECONOMIC BENEFITS

107-12 107-12 107-13 107-14 107-15

107-3

I.

SUMMARY

This profile envisages the establishment of a plant for the production of capacity of 5,000 tonnes per annum.

lime with a

The present demand for the proposed product is estimated at 11,234 tonnes per annum. The demand is expected to reach at 40,922 tonnes by the year 2025.

The plant will create employment opportunities for 34 persons.

The total investment requirement is estimated at about Birr 18.26 million, out of which Birr 8 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 29 % and a net present value (NPV) of Birr 19.21 million discounted at 8.5%.

I.

PRODUCT DESCRIPTION AND APPLICATION

Limestone is defined as a rock of sedimentary origin composed principally of calcium carbonate or the double carbonate of calcium and magnesium, or a combination of these two minerals.

Lime is inorganic chemical compound, which is usually known as quick lime or nonslaked lime obtained from a naturally occurring compound called limestone. Quick lime that is chemically expressed as calcium oxide, a strong caustic ingredient widely used in construction industry in the preparation of mortar and plasters.

It is also used for white washing of houses and building. Iron and steel plants and foundries use lime as fluxing agent in considerable quantities. Some drugs and

pharmaceuticals, paper mills, pesticides formulation plants, and other chemical

107-4 processing industries use it as additives. Moreover, it has a considerable contribution in agriculture as an agent for removal of excess soil acidity.

III.

MARKET AND PLANT CAPACITY

A.

MARKET STUDY

1.

Present Demand and Supply

Lime is used in the preparation of cement and mortar and as a neutralizer of acid soils in agriculture. It is also used in the manufacturing of paper, glass, and white mash, in leather tanning, sugar refining, and as a water softening agent. The requirement for lime is entirely satisfied through domestic production. Table 3.1 depicts the amount of

domestic production of lime during 1997-2005. Apparently the volume of production had been fluctuating with a rising trend. On the average, 9456 tons of lime was produced during the period under reference. Table 3.1 Domestic Production of Lime Year Quantity (tons)

1996 7207 1997 7332 1998 6619 1999 6913 2000 9273 2001 11350 2002 7805 2003 10532 2004 15679 2005 11850 Average 9456 Sources: CSA, Statistical Abstract, various years.

107-5

Given, the considerable fluctuations in the supply of the product, which comprises of only domestic production, the average annual supply for the period under reference is considered as the effective demand for the product for the year 2005. The average rate of growth of supply of the product during the reference period is computed to be 9%. This rate of growth is adopted in estimating the demand for the product. The present demand for the product (i.e. 2007) is thus estimated at 11234.67 tons. 2. Demand Projection

As stated above, a rate of growth of 9% is used in projecting the demand for lime. Assuming the produce of the envisaged plant can account for one-fourth of the projected demand, the market share of the envisaged plant is depicted in Table 3.2. Table 3.2 PROJECTED DEMAND FOR LIME (TONS) Year Projected Demand 11234.67 12245.79 13347.91 14549.22 15858.65 17285.93 18841.67 20537.42 22385.78 24400.50 26596.55 28990.24 31599.36 34443.30 37543.20 40922.09 Market share of Envisaged Plant 2808.67 3061.45 3336.98 3637.31 3964.66 4321.48 4710.42 5134.35 5596.45 6100.13 6649.14 7247.56 7899.84 8610.83 9385.80 10230.52

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

107-6 3. Pricing and Distribution

The current price of lime ranges from about Birr 3,500 per tonnes to Birr 4,500 per tonnes. This price range could, therefore, be used as a reference for the financial evaluation of the project.

Distribution could be effected directly to major users or through the intermediariship of wholesalers and agents.

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

In determining the plant capacity of the lime production plant the future demands of the product and the economic of scale of the available technologies were taken into consideration. According to the data obtained from the market study, the market share of the envisaged plant raises from 2808.67 tonnes to 10,230.52 tonnes from years 2007 to 2022, respectively.

Hence, based on the demand gap and the minimum economic of scale for lime production, a plant with a capacity of 5,000 tonnes per annum is selected.

2.

Production Programme

It is assumed that the lime plant will start at 70% in the first year, and then raise its production by 85% in the second year and finally operates at 100% capacity in the third year.

107-7 IV. MATERIALS AND INPUTS

A.

MATERIALS

The principal raw material for the production of lime is limestone. This raw material is a sedimentary rock dominantly composed of carbonate minerals, particularly carbonates of calcium and magnesium. The commonly known chemical composition of limestone is calcium oxide, (CaO), and carbon dioxide, (CO2). However, small amounts of impurities such as silica and aluminum may be present in lime stone mineral. The annual requirement of this raw material is shown in Table 4.1.

Table 4.1 ANNUAL RAW & AUXILIARY MATERIALS REQUIREMENT

No.

Description

UOM

Qty F

Cost

‘ 000 Birr L T 990 250

1 2

Lime Stone

Tone

9,000 100,000

-

990 250

Packing material, 50 kg Pcs bag Total

--

1240

1240

B.

UTILITIES

The utilities required are fuel oil/Mazut for boiler, electric power, and water for process as well as for general purpose. The annual requirement of these utilities is indicated in Table 4.2.

107-8 Table 4.2 ANNUAL REQUIREMENT OF UTILITIES

Sr. No. 1. 2. 3.

Description

Unit of Measure

Qty

Cost ('000 Birr)

Electricity Water Fuel oil/Mazut

KWh m3 m3

185,000 1000 1200

87.616 10 7030.7

Grand Total

7074.616

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Process Description

The principal unit operation-taking place in a lime production is calcinations, which is carried out in kilns of appropriate design depending upon the raw materials characteristics. To-date two types of kilns are known. These are vertical shaft kilns and horizontal rotary kilns. For the envisaged plant a horizontal rotary kiln is found to be appropriate for the calcination process. A quarried or mined- limestone raw material is first crushed and screened to produce the required size before it is fed to the kiln. In the horizontal rotary kiln a decomposition reaction takes place at a high temperature ranging (900-1100) degree centigrade.

The burnt lime stone results into calcium oxide (CaO) and carbondioxide (CO2). The lime thus formed is cooled in drum cooler to about 800C and then packed for storage or delivery.

107-9 2. Source of Technology

MOVERS (INDIA) PRIVATE LTD. BASAVA BHAMAN, HIGH GROUNDS FAX 91-802263606

The above-mentioned company is a leading Indian Company in the manufacture of cement, lime and mineral product producing machinery.

B.

ENGINEERING

1.

Machinery and Equipment

One of the core machines in lime production is the kiln. Others such as crusher, elevator, belt conveyor are secondary equipments which argument the kiln by preparing and transporting both the raw and finished materials to and out of the same. The total cost of machinery and equipment is estimated at about Birr 8.00 million, out of which 6.5million is required in foreign currency. Lists of required machinery and equipment are shown in Table 5.1.

107-10 Table 5.1 LIST OF MACHINERY AND EQUIPMENT

Description 1. Rotary Kiln 2. “ Cooler

Qty. 1 1 1 1 2 3 2 1 1 2

3. Crusher 4. Belt Conveyer 5. Elevator 6. Pump 7. Fan 8. Mist Eliminator 9. Venturi 10. Smoke flue 11. Curtain chains 12. Control Instruments 13. Miscellaneous equipment & tool 14. Fittings

Set -

2.

Land, Building and Civil Works

The plant requires a total of 7500 m2 area of land out of which 3,000 m2 is built-up area which includes Processing area, raw material stock area, offices etc. Assuming construction rate of Birr 2500 per m2, the total cost of construction is estimated to be Birr 7.5 million. The total cost, for a period of 80 years with cost of Birr 1 per m2, is estimated at Birr 7,500. The total investment cost for land, building and civil works is estimated at Birr 7,507,500.

107-11 3. Proposed Location

According to the resource potential study of the region, the raw material is identified in Sodo and lemo woredas. Based on the availability of raw material infrastructure, utility and market out let Bue town of Sodo woreda is selected and recommended to be the location of the envisaged plant.

VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The plant requires both administrative and Technical manpower for its smooth operation thus, the total manpower requirement by type is listed in Table 6.1 below. Table 6.1 MANPOWER REQUIREMENT AND LABOUR COST Salary ‘000 Birr Monthly Annually 2500 850 900 550 500 400 450 30,000 10,200 8,400 6,600 6,000 19,200 5,400 85,800 24,000 36,000 50,400 18,000 21,600 18,000 168,000 253,800 63,450 317,250

Type A. Administrative 1 Manager 2 Exc. Secretary 3 Accountant 4 Purchaser 5 Store Man 6 Guard 7 Driver Sub Total B. Technical 1 Production & Technical Head 2 Senior Mechanic 3 Operation /Skilled/ 4 Assistant Operators 5 Unskilled workers 6 Technicians Sub Total Total (A+B) Benefits 25% Grand Total

Qty. 1 1 1 1 1 4 1 9 1 3 6 3 9 3 25 34 34

2000 1000 700 500 200 500

107-12 B. TRAINING REQUIREMENT

Training of key personnel such as the Production & Technical Head and the senior mechanics is very essential. Thus, this staffs have to be trained abroad by arranging

training programmes with the machinery supplier. The cost of such training has to be covered by the suppliers themselves. The rest of the production and technical personnel can be given on–the-job training during the erection and commissioning period.

VII.

FINANCIAL ANALYSIS

The financial analysis of the lime project is based on the data presented in the previous chapters and the following assumptions:Construction period Source of finance 1 year 30 % equity 70 % loan Tax holidays Bank interest Discount cash flow Accounts receivable Raw material local Work in progress Finished products Cash in hand Accounts payable 3 years 8% 8.5% 30 days 30 days 5 days 30 days 5 days 30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 18.26 million, of which 52 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.

107-13 Table 7.1 INITIAL INVESTMENT COST

Sr. No. 1 2 3 4 5 6 7 Cost Items Land lease value Building and Civil Work Plant Machinery and Equipment Office Furniture and Equipment Vehicle Pre-production Expenditure* Working Capital Total Investment cost Foreign Share

Total Cost (‘000 Birr) 600.0 7,500.0 8,000.0 100.0 250.0 1,034.2 781.2 18,265.3 52

* N.B Pre-production expenditure includes interest during construction ( Birr 884.15 thousand ) and Birr 150 thousand costs of registration, licensing and formation of the company including legal fees, commissioning expenses, etc.

B.

PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr

10.8

million (see Table 7.2). The material and utility cost accounts for 76.99 per cent, while repair and maintenance take 1.05 per cent of the production cost.

107-14 Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Raw Material and Inputs Utilities Maintenance and repair Labour direct Factory overheads Administration Costs Total Operating Costs Depreciation Cost of Finance Total Production Cost

Cost 1,240.00 7074.6 113.65 152.28 50.76 101.52 8,732.81 1295 772.25 10,800.06

% 11.48 65.51 1.05 1.41 0.47 0.94 80.86 11.99 7.15 100

C.

FINANCIAL EVALUATION

1.

Profitability

According to the projected income statement, the project will start generating profit in the first year of operation. Important ratios such as profit to total sales, net profit to equity (Return on equity) and net profit plus interest on total investment (return on total investment) show an increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is viable.

107-15

2.

Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at full capacity ( year 3) is estimated by using income statement projection.

BE =

Fixed Cost Sales – Variable Cost

=

36 %

3.

Pay Back Period

The investment cost and income statement projection are used to project the pay-back period. The project’s initial investment will be fully recovered within 4 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 29 % and the net present value at 8.5% discount rate is Birr 19.21 million.

D.

ECONOMIC BENEFITS

The project can create employment for 34 persons. In addition to supply of the domestic needs, the project will generate Birr 9.3 million in terms of tax revenue.