Annexures

to
Terms of Reference

Annexure-1: Marketing Feasibility

Annexure-2: Financial Feasibility
Annexure-3: Environment Feasibility
Annexure-4: Social Safeguard Feasibility
 Annexure-1
Marketing Feasibility
Of
Caustic Soda/Chlorine Project.

Abstract:

With companies in the chemical industry facing increasing competitive pressures from peer groups and
regional and foreign players who try to capture a larger market share, local and state chemical companies
such as PCCL must devise effective strategies to stay competitive and relevant in the market. The Caustic
Soda/Chlorine Project Proposal is expecting to transform PCCL to new heights while boosting industrial
economic growth. However, to make the right strategic business decisions in a competitive market, local
companies such as PCCL in the chemical industry must understand the industry's fluctuating dynamics, as
well as the trends in demand growth and sources of cost advantage, while using Caustic Soda/Chlorine
Project to enhance market value by using competitive advantage of “Made in Sri Lanka” as the marketing
strategy.
Introduction & Background

Paranthan Chemicals Company Limited (PCCL) is fully state-owned profit making Company.
PCCL is pioneering company in Sri Lankan Chemical Industry with brand value over hundreds
of millions of rupees. At present core business of PCCL is import and supply caustic soda and
chlorine and related products. When it comes to import and local supply of Chlorine PCCL is the
market leader with having 95% of market share. It does have significant market share on
importing and distributing other chemicals including caustic soda. With implementation of
proposed Caustic Soda/Chlorine Project, Paranthan chemicals would become un-disputed market
leader in the Sri Lankan Chemical Industry once again surpassing its former glorious era.
The project produces two main products namely Caustic Soda liquid and Chlorine and Hydro-
Chloric Acid, Sodium Hypochlorite as byproducts. There are many downstream products such
as, Poly Aluminum Chloride, Ferric Chloride, Calcium Chloride, Soap Noodles, Sodium Silicate,
Bleaching Powder, Chlorinated Paraffin, Hydrogen Peroxide. The two main products are called
as base chemicals due to extensive usage in many manufacturing industries as building blocks of
many more products.
Marketing Feasibility study (MFS), is very important and crucial part of the Caustic
Soda/Chlorine Project. Main objective here is to leverage market assessment to understand
market conditions and to identify the potential market risks and opportunities of this project, as a
leading player in the chemical industry specializing in the manufacture of base chemicals.

Market Analysis
Market analysis is the key activity for determining the scope of an investment. First step is to
prepare detailed estimate of the actual market volume and the market potential. The second step is
to forecast the development of future market volume. This would provide the basis for projection
of sales quantities, and therefore for the production program, plant capacity utilization and derived
requirements of materials, inputs, labor, investment, etc.
It is expected during MFS to list down and describe data needed for the market analysis,
evaluation and determination of present and future demand using alternative projection methods
and select a preferred method for data evaluation and explain rationale behind the selection on
market analysis point of view. There after MFS should detail the methods of data evaluation and
demand determination to be used for the Caustic Soda/Chlorine Project.

Determination of market size for products and down steam products.

It is expected MFS to evaluate data and present final results showing: size and composition of
present effective demand (total and by segment) identified target markets; marketing strategies
Estimated market penetration by products. Demand projections for the market (total and by
segment) for the lifetime of the project.
Marketing Strategy for main and down steam products

The Caustic Soda/Chlorine Project is expecting to have high volume sales partnership with
contract agreements, MOU’s etc. It is expected first to make sales program and marketing plan
for main products and down steam products of the proposed project with possible alternatives
and preferred sales program with presenting reasons behind the preference. It is expecting to
make presentation on sales program using tables, graphs and maps as appropriate to show the
development throughout the lifetime of the project.

Together with above data, detail the marketing strategy finally selected including reasons for
selection covering following topics
- Product and Product Policy (Product Mix)
- Product Pricing (Price Mix)
- Promotional efforts during pre-production and production stages (Communication Mix)
- Organizational set up of distribution and sales (Distribution Mix)

Estimate of sales revenues

Estimate annual sales revenues based on the sales program and the marketing strategy. Most
importantly sales forecast should go one to one with Financial Appraisal.

Estimate of sales and distribution costs (marketing costs)

Estimate sales and distribution costs

Production Program and Plant Capacity

Once the sales projections are available, a detailed production program should be prepared
showing the various production activities and their timing. The determination of production
program and plant capacity should be discussed with PCCL.
 Annexure-2
Financial Feasibility
Of
Caustic Soda/Chlorine Project.

Abstract:

This financial feasibility study (FFS), is a tool for providing potential investors, promoters and
financiers including banks with the information required to decide whether to undertake an
investment, and whether and how to finance the Caustic Soda/Chlorine project in Sri Lanka.
FFS Report will showcase the project financing, which includes the design of a proper financial
structure, considering the conditions under which funds would be available, and the
optimization of project financing from the point of view of the Paranthan Chemicals Company
Limited and the investors including national, international and intergovernmental bankers who
would become loan facilitators.

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Financial Analysis
This feasibility study, is a tool for providing potential investors, promoters and financiers
including banks with the information required to decide whether to undertake an investment,
and whether and how to finance the Caustic Soda/Chlorine project in Sri Lanka. Financially,
the Caustic Soda/Chlorine Project investment which an industrial investment could be
financially defined as a long-term commitment of economic resources made with the objective
of producing and obtaining net gains in the future.
The main aspect of this long term commitment is the transformation of liquidity-the investor's
own and borrowed funds-into productive assets, represented by fixed investment and net
working capital, as well as the generation of liquidity again during the use of these assets.
With above characterization it becomes evident that financial analysis and final project
appraisal involves the assessment, analysis and evaluation of the Caustic Soda/Chlorine project
input(s), the output(s) to be produced and the future net benefits, expressed in financial terms.
For this purpose, selected firm may apply following methods:
• Analysis of the reliability of projected data.
• Analysis of the structure and significance of costs and income projections in
order to identify the critical variables that could have a significant impact on
the feasibility of the Caustic Soda/Chlorine project investment
• Determination and evaluation of the annual and accumulated financial net
benefits, expressed as profitability, efficiency and/or yield of the investment.
• Consideration of the time factor with regard to prices, cost of capital, and
decisions taken in conditions of uncertainty (norm, business risks and specific
project risks).
The above-mentioned transformation of liquid financial resources (funds) into productive assets
(fixed assets and net working capital) corresponds to the financing of the Caustic Soda/Chlorine
Project investment. Project financing includes the design of a proper financial structure,
considering the conditions under which funds would be available, and the optimization of
project financing from the point of view of the Paranthan Chemicals Company Limited and the
investors including national, international and intergovernmental bankers who would become
loan facilitators.
As noted earlier, the conditions for the appraisal of the Caustic Soda/Chlorine Project
investment are that a technically feasible solution is also financially feasible, can be
implemented within the socio-economic and ecological environment identified for the
investment project (socio-economic and ecological feasibility), and is likely to continue to be
feasible for the minimum time determined by decision makers as the planning horizon for their
decisions.
The scope and objectives of financial analysis are therefore to determine, analyses and interpret
all the financial consequences of the Caustic Soda/Chlorine Project investment that may be
relevant to and significant for the investment and financing decisions.

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Once all the elements of the feasibility study are prepared in accordance with the approach
outlined in the previous articles, the next step is to compute the total investment costs and annual
production costs. Taking the above mentioned into consideration, following indicates the
manner in which it is expected.
Total Investment Costs
Calculate the total investment costs by summarizing all investment components as follows
• Land and site preparation
• Structures and civil engineering works
• Plant machinery and equipment
• Auxiliary and service plant equipment
• Fire & Safety
• IT & ERP System
• Incorporated fixed assets
• Pre-production capital costs
• Net working capital requirements

Project Financing
Describe and justify assumed or actual sources of finance. Calculate annual financial costs.
Describe the impact of cost of financing and debt servicing on project proposal. Describe the
financial structure (debt/equity) ratios

Total Cost of Products Sold

Calculate total cost of products sold by summarizing all cost items as described below,
• Market Analysis and Marketing Strategy,
• Raw Materials and Supply,
• Location, Site, Environmental & Social Impact Assessment,
• Engineering and Technology,
• Organization and Overhead Costs,
• Human Resources,
• Implementation Planning and Budgeting
Use data from Organization and overhead costs and incorporate them into separate schedule to
summarize total cost of products sold. Estimate the cost of products sold on an annual basis in
accordance with the assumed capacity utilization during the initial years of operation and
thereafter. Also estimates the unit cost of products that are to be sold.

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 Financial Statements
• Prepare projected cash-flow tables, income statements and balance sheets covering the
entire project life.
• Compute commercial profitability indicators:
o Pay-back period
o Simple rate of return
o Net Present Value
o Internal rate of return
• Carry out break-even analysis (expressing break-even point in terms of sales revenues,
physical units produced and capacity utilization).
• Make sensitivity analysis (impact of changes in sales price, variable and fixed
production costs and investment costs on the financial viability of the project). Indicate
major risk factors and their likelihood of occurrence
• State clearly to what extent the project is subject to uncertainties. To which extent can
one consider the project as a safe investment.
• Present Financial Ratios.
Economic Cost-Benefit Analysis
At 2800 million LKR, Caustic Soda/Chlorine Project is considered as a major project, it
impact is a national level and since the project proponent PCCL is a fully state own
company an Economic Cost-Benefit Analysis to be consider.
It should emphasis that economic cost-benefit analysis should present the contributions of
the project to the national economic and social objectives, for this purpose analyze aspects
such as
• Employment generation
• Income distribution
• Foreign exchange savings
• Environmental impacts

Only important issues in favor or against the project that could convince the PCCL and
Ministry of Industries and Supply Chain Management on the merits/demerits of the Caustic
Soda Project needed to be presented.

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Software Usage for Analysis

It is recommended to use computer software to present profitability calculations. The use of

computers helps to eliminate accidental errors and allows quick analysis of several project
alternatives combining a wide range of possible changes of variables.

Economic Net Present Value (ENPV)

Economic Internal Rate of Return (EIRR)

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 Annexure-3
Environmental Feasibility
of
Caustic Soda/Chlorine Project.

Abstract:

Environmental Feasibility Study (EFS) assesses the viability of the proposed caustic soda/chlorine project
from an environmental perspective, identifying potential issues and threats to the successful completion of
the proposed caustic soda/chlorine project. Solutions and mitigative measures are be investigated. The
purpose of the EFS is to evaluate potential risks and liabilities with regards to environmental and health &
safety issues such as land contamination, before any contractual agreements are entered into. This is vital
as these risks may translate into financial liabilities for the parties involved.

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Introduction & Background

Environmental Feasibility Study (EFS) assesses the viability of the proposed caustic soda/chlorine
project from an environmental and social perspective, identifying potential issues and threats to
the successful completion of the proposed caustic soda/chlorine project. The Caustic
Soda/Chlorine Project EFS will be investigating solutions and mitigative measures. The purpose
of the EFS Report is to evaluate potential risks and liabilities with regards to environmental and
health & safety issues such as land contamination, before any contractual agreements are entered
into. This is vital as these risks may translate into financial liabilities for the parties involved.
Therefore, the EFS should include a thorough and realistic analysis of the environmental impacts
of the investment project. These impacts are often of crucial importance for the socio-economic,
financial and technical feasibility of a project. Following are expected to be covered in the EFS of
Caustic Soda/Chlorine Project.

Scope of Work.

EFS will analyze project proposal for the Caustic Soda/Chlorine Project. Project proponent
expected to be informed about relevant laws and policies, as well as Strategic Environmental
Assessments (SEAs) by Central Environmental Authority, which consider broader sectoral,
regional, or spatial opportunities and risks within policies, plans, or programs, as conditions for
development of final feasibility study of the Caustic Soda/Chlorine Project.
The EFS work process should engage interested and affected parties in the earliest stage of the
project. This scoping is a formal step to ensure all relevant stakeholders are involved and the EFS
focuses on key issues, to enable and influence design, consideration of project alternatives.
Relationships among biophysical impacts (water, biodiversity, air, soils) and impacts on people
(social, cultural heritage, economic, livelihoods, health, safety, human rights, and gender) must be
identified and evaluated, and must also recognize relationship to the Sustainable Development
Goals (SDGs) and Circular Economy. EFS Specialist assessments must identify and evaluate all
potentially significant impacts and ensure that the links between biophysical impacts and people
through ecosystem services—nature’s contribution to people—are made clear, furthermore the
Caustic Soda/Chlorine project and the acceptability of impacts must be assessed in the light of
predicted climate change.
EFS should address the chain of direct, indirect, and induced effects, as well as cumulative effects
(additive and synergistic effects of downstream projects and future expansions if any on the same
environmental resources and people).
The EFS must describe measures to prevent, minimize, and/or remedy harm or enhance project
benefits, and explain any tradeoffs (i.e., losses in some areas, gains in others). It should analyze

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the distribution of negative and positive impacts—who benefits, who loses or suffers, and whether
it is fair.
The EFS report of Caustic Soda/Chlorine project should reflect the size/scale and location of the
project. It must be an objective to give a non-technical summary of the findings. It should state if
the EFS specialist studies have been peer reviewed. Baseline studies and methods of assessing
impacts should be clearly explained.
Impact predictions must make sense and be supported by data. Context, history, trends, and
location will affect the interpretation of social, cultural, and economic impacts, where as for
biophysical, climate change, and health impacts, there are proven scientific relationships between
cause and effect and environmental models. In every situation, the EFS must base the certainty
and predictability of impacts on thorough and accurate baseline information and probable future
scenarios as well.
The approach to evaluating impact significance (based both on science and human values) should
be set out as one of first workout by EFS specialist. Relevant international agreements (e.g.,
Convention on Biological Diversity), SDGs, national laws, customary laws, and national or local
standards should be cited. Because acceptability of impacts to affected parties is important,
stakeholder engagement is crucial. Impacts that cause loss of resources that are unique, scarce,
under threat or irreplaceable, are irreversible or are unacceptable to affected parties, would all be
considered significant.
It is important that EFS Report must describe and evaluate all project phases and components, and
the associated infrastructure or activities on which the Caustic Soda/Chlorine project relies, e.g.,
access roads, use of renewable power sources or water sources as much as possible in this early
stage of the project.
The EFS must reference and address the potential impacts identified through early scoping.
The FES must consider all relevant valued environmental resources (threatened or rare
biodiversity, water, ecosystem services), tangible and intangible cultural heritage, health and
safety, effects on livelihoods, as well as climate change effects.
The EFS must consider feasible alternatives, if any that have fewer adverse impacts and more
benefit.
The EFS must provide a realistic plan to mitigate (avoid or prevent, minimize, restore or
rehabilitate, offset or compensate) adverse impacts and enhance positive impacts of the best
alternative, as well as monitor and adapt management of the project to achieve desired results.
The selected consultancy firm is required to initiate Environmental Impact Assessment Process
together with EFS in coordination with PCCL. The selected consultancy firm will be required to
complete the EIA/IEE process and obtain the Central Environment Agency approval. The selected
consultancy firm shall be responsible for monitoring of environmental parameters of the caustic
soda/chlorine project twelve months after commercialization of the project. The EIA/IEE should
initiate with BIQ (Basic Information Questioner) and impact assessment out line below.

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Screening of Possible Environmental Impacts:
- Type of processes involved.
- Size of the plant
- Type of wastes and proposed ways of their disposal (quantities and qualities)
Identification of Receptors of Impacts
- Area where the project is to be located
- Receptor(s) of wastewater
- Disposal of solid waste
- Disposal of flue gases (Chlorine)
Analysis of Environmental Impacts
- Capacity of environment to absorb discharges
- Significance of long-term impacts on humans, fauna and flora.
Analysis of Required Mitigating Measures and Their Respective Costs
- Effects of "good housekeeping" and Resource Conservation
- Effects of Recirculation and Re-use
- Possible Process Changes
- Treatment and Disposal of Waste

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 Annexure-4
Social Impact Assessment
Of
Caustic Soda/Chlorine Project.

Abstract:

The goal of Social Impact Assessment (SIA) is to bring about a more ecologically, socio-culturally and
economically sustainable and equitable environment therefore promoting community development and
empowerment, builds capacity, and develops social capital (social networks and trust). A proactive stance
to the Caustic Soda/Chlorine Project and its outcomes are expected from this SIA, not just the identification
or improvement of negative or unintended outcomes. SIA Assistance for communities and other
stakeholders to identify development goals, and ensuring that positive outcomes are maximized.
Introduction & Aim of SIA

The goal of Social Impact Assessment (SIA) is to bring about a more ecologically, socio-culturally and
economically sustainable and equitable environment. Social Impact assessment, therefore, promotes
community development and empowerment, builds capacity, and develops social capital (social networks
and trust).
The focus of concern of SIA of Caustic Soda/Chlorine Project is a proactive stance for development and
better development outcomes, not just the identification or improvement of negative or unintended
outcomes. Assisting communities and other stakeholders to identify development goals, and ensuring that
positive outcomes are maximized.
The good practice of SIA accepts that social, economic and biophysical impacts are inherently and
inextricably interconnected. Change in any of these domains will lead to changes in the other domains. SIA
for the Caustic Soda/Chlorine Project must, therefore, develop an understanding of the impact pathways
that are created when change in one domain triggers impacts across other domains, as well as the iterative
or flow-on consequences within each domain. In other words, there must be consideration of the second
and higher order impacts and of cumulative impacts.
SIA thus has strong links with a wide range of specialist sub-fields involved in the assessment of areas such
as: community impacts; demographic impacts; development impacts; economic and fiscal impacts;
infrastructural impacts, institutional impacts; political impacts; impacts on social and human capital; and
other impacts on societies. It should note that SIA is much more than the prediction step within an
environmental assessment framework. Social impacts are much broader than the limited issues often.

Scope & Activities

Caustic Soda/Chlorine project is about to locate in Paranthan, Kilinochchi District of Northern
province. It will be established in a land area demarcated within the land belongs to PCCL. It is
expected that with SIA will conceptualize and capture following related to the intervention by
implementing Caustic Soda/Chlorine Project.
• people’s way of life – that is, how they live, work, play on a day-to-day basis;
• their culture – that is, their shared beliefs, customs, values;
• their community – its cohesion, stability, character, services and facilities;
• their political systems
• their environment – the quality of the air and water people use; the level of hazard or risk, dust and
noise they are exposed to; their physical safety;
• their health and wellbeing – health is a state of complete physical, mental, social and spiritual
wellbeing and not merely the absence of disease or infirmity;
• their fears and aspirations – their perceptions about their safety, their fears about the future of their
community, and their aspirations for their future.

It is expected that for the Caustic Soda/Chlorine Project, the SIA to include following activities so that it
could provide better understanding and conclusion for project go-no go options.

• identifies interested and affected peoples;

• facilitates and coordinates the participation of stakeholders;
• documents and analyses the local historical setting assess cumulative impacts;
• collects baseline data to allow evaluation and audit of the impact assessment process;
• gives a rich picture of the local cultural context, and develops an understanding of local community
values;
• Identifies and describes the activities which are likely to cause impacts (scoping);
• predicts (or analyses) likely impacts and how different stakeholders are likely to respond;
• assists evaluating and selecting alternatives (including no development option);
• recommends mitigation measures;
• assists in the valuation process and provides suggestions;
• describes potential conflicts between stakeholders and advises on resolution processes;
• develops coping strategies for dealing with residual or non-mitigatable impacts;
• contributes to skill development and capacity building in the community;
• advises on appropriate institutional and coordination arrangements for all parties;
• assists in devising and implementing monitoring and evaluation program