Ability Trading Plc

Water Wells Drilling Business

Feasibility Study

June, 2023
Contents
Section 1: Introduction:...............................................................................................................................2
Section 2: Executive Summary.....................................................................................................................4
Section 3: General information about the project.......................................................................................5
Section 4: Market Analysis..........................................................................................................................6
Section 5: Technical Analysis.....................................................................................................................10
Section 6: Competitive Analysis.................................................................................................................17
Section 7: Environmental Impact Analysis.................................................................................................19
Section 8: Manpower & organizational structure......................................................................................19
Section 9: Products and Services...............................................................................................................21
Section 10: Marketing Plan & Strategy......................................................................................................22
Section 11: Policy Analysis.........................................................................................................................22
Section 12: Raw materials and accessory supply.......................................................................................23
Section 13: Project Time plan....................................................................................................................23
Section 14: Construction scope.................................................................................................................24
Section 15: Socio-Economic value.............................................................................................................24
Section 16: Financial Aspects.....................................................................................................................25
Section 17: Machine, truck, equipment, and office facilities.....................................................................25
Section 18: Office furniture & Equipment.................................................................................................28
Section 19: Production cost.......................................................................................................................28
Section 20: Construction Contract Price Analysis......................................................................................29
Section 21: Financial Analysis....................................................................................................................31
Section 22: Working Capital......................................................................................................................32
Section 23: Project Opportunity Cost Analysis..........................................................................................34
Section 24: Conclusion and recommendation...........................................................................................36
Section 25: Facts & Assumptions...............................................................................................................38
Section 26: Annex......................................................................................................................................40

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Section 1: Introduction:

1.1 Water benefit and its accessibility in Ethiopia

Water is critical for socio-economic development and human survival as a source of livelihood
generation. Water is strongly linked to human well-being. Lack of enough clean water, water
quality, quantity and related management issues significantly affect the subjective well-being.
Lack of access to water measured by distance to available water resources, water needs fulfilled
and allied health issues.

Without water there can be no life and no development. Although water is necessary for
sustainable development, by itself it is not sufficient to achieve development. Broadly water
fulfills an economic, social, cultural, political and ecological role in improving people’s quality
of life. But millions of people do not even have access to clean drinking water and sanitation,
never mind using water for development.

An ever-increasing population, rapid urbanization and industrialization, the unsustainable type of

development path followed and widespread poverties and growing inequalities, will only make
this situation worse in the future. Proposals on how to address these challenges and ensure access
to water for all has to do with viewing water as an economic commodity or enforcing it as a
human right of all. But underlying all these challenges and views are the reality of water being a
source of power and wealth.

The efforts to ensure access to water have been recognized and accepted globally with the
commitment to halve the percentage of people lacking access to drinking water by 2015 in the
United Nations Millennium Development Goals (MDGs), there are still more than 660 million
people using an unimproved source of water. Further, 40% of people around the world are facing
water scarcity and access to safe drinking water is uneven between urban and rural areas (UNDP
2015).

According to Ethiopia Globalwaters,org report only 29 percent of the Ethiopian population has
access to basic water while only 7 percent has access to basic sanitation. In addition to it the
number of private investors in the water development sector is limited. Most of water well
developments are made by regional government organizations with 73 old rigs followed by 11
NGOs.

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This business proposal, therefore, contributes in capacity building of water sectors for a
community's well-being.

1.2 History Groundwater Utilization in Ethiopia

Water occurrences and access to water resources have contributed to the shaping of Ethiopian
history and culture. Ancient and modern civilization in Ethiopia has been founded on areas
where groundwater has been available mainly as springs. Several place names retain their names
after the water sources, for example El-kere, El-bana, El-gof. There is well documented evidence
that the very well being of the traditional Borena community in Southern Ethiopia is strongly
linked to groundwater resources management. As to when exactly, development of the
groundwaters through artificial intervention (digging, drilling etc.) has started is not apparently
documented. There is historical evidence that the ancient (2000 years ago) Axum Township used
cisterns to supply the settlement (Phillipson 1995). The cistern called Maishum was a
constructed structure that collects surface water runoff and (probably lowdischarge springs) in
the ancient Axum. The traditionally Borena wells are thought to have been existed as much as
the community themselves and dates back several centuries (Helland 1998).

There is a clear document as to when modern groundwater drilling started in Ethiopia. The first
machine drilling of wells dates back to 1867–1868. The wells have been drilled by the British
Military led by Napier while they entered into war with emperor Tewodros of Abyssinia. The
drilling facility or the wells are called Norton Tube wells or Abyssinian Wells. While these wells
mark the first machine drilled wells in Ethiopia, the British War of 1867–1868 is associated with
significant innovation through the widespread use of the Norton Tube Wells. This was a
perforated pipe with a pointed bottom end which was driven into the ground by rising and
dropping a cylindrical weight on to its upper surface and the system is proven to be effective in
alluvial and other unconsolidated sediments (Robins and Rose 2009). The installation of the first
modern water facility in capital city Addis Ababa dates back to 1884 and the water supply
system taps springs in the hills north of the National Palace. The installation of the palace water
supply that year was engineered by Alfred Ilg (Swiss technician and engineer) and this has
created much excitement.

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Section 2: Executive Summary

Ability Trading Plc is a newly established for-Profit Company, by two local investors, in Addis
Ababa, Ethiopia. The investors are young, educated and have experience in management of a
business. The project’s main establishment objective is participating in water well development
works in accordance with the country policy. As business nature allows us to do so, the project
plans to provide service throughout the country.

The project requires Birr 40.4 million capital outlay investment. Out of total investment cost,
machines, working capital, and office furniture &machine equipment investment share are Birr
36.8, 2.15 and 1.4 million respectively. The rigs and crane that were mounted in truck cost is
nearly birr 36.8 million which is91 percent of the project cost.

The project plans to construct 72 water wells construction within a 6-year period. This water well
construction serve as drinking and sanitation water source for more than a million people for
more than 25 years without maintenance.

At the end of the project commissioning stage, the project creates job opportunities for at least 17
citizens.

The project generates a total income of Birr 155 million before tax from its service in 6 years’
time. While the government tax payment Birr 46.45 million is being considered, the project’s net
income reaches Birr 108.4 million that would be creates business expansion. This also shows the
business strong resilience of business at any business obstacles.

The business plan shows that the payback period of the lease cost is 3 years and break-even-point
is 3 wells construction per year. Moreover, the project has 818% return on capital, 48% return on
asset (considering lease investment cost), internal rate of return 21% and net present value of 27
million.

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As the above major facts indicate, the establishment of the project has greater socio-economic
value to the country in the form of human well-being, GDP expansion, crate job opportunities
and generating tax to the government.

Section 3: General information about the project

1.1 Basic information

 Name of the promoter: Ability Trading Plc
 Contact Address: 0913019090
 Types of the project: Water Wells Drilling
 Types of Business: Private Limited Company
 Project Location: Addis Ababa Bole Sub-city
 Project Capital: The total investment capital of the project is estimated to Birr
44.8million, of which the fixed investment cost is birr 42.6million and working capital
cost is birr 2.24million.
 Source of Finance: Overall Machine and Machine equipment cost is financed by Bank
whereas shade, office and working capital cost is contributed by the promoter
1.2 Company Description

Ability Trading Plc is a newly established company in Ethiopia an outlay capital of three million
Ethiopian birr contributed by three shareholders. The current contact office exists in the capital
city of Ethiopia situated at Bole Sub-city Woreda 06 house No. new Addis Ababa, Ethiopia. The
company is established for making business or for-profit considering government and social
responsibilities as priority.

The general manager of the project has high competency in the business. She has second-degree
qualification in Ethiopian linguistic, more than 8 years practical experience as an employee, and
8 years business experience manufacturing, farming, and import & exports as a business owner.

Ability Trading Plc has vision of “being number one choice well drilling service provider in
East-Africa”. To realize the vision, the company sets measurable and achievable mission which

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is “Expand the service to east Africa countries within 5 years by purchasing world art technology
and staffing top experienced manpower that exist in the sector. In the case of business goals,
satisfying customers by providing efficient and effective services, earning enough profit, and
performing social responsibilities are the major ones respectively.

The core business objective of a project is becoming and staying profitable. In order to achieve
this business objectives, the envisage project will work on the following activities by providing
high concern.

 Maintaining cash flow.

 Establishing and sustaining productivity.
 Attracting and retaining customers.
 Developing a memorable brand.
 Reaching and growing an audience through marketing; and
 Planning for growth

Section 4: Market Analysis

4.1 General analysis of the market for entire industry

Understanding the market is the key to determining if an enterprise will succeed or fail. For this
reason, the general overall industry market, industry sector and construction sub-sector
information are gathered, and analysis follows accordingly.

The Ethiopian economy registered 6.3 percent growth in 2020/21 which was, slightly bigger than
the 6.1 percent expansion in the previous year. This growth was broad based with industry
growing at 7.3 percent, service 6.3 percent, and agriculture 5.6 percent. In addition, per capital
income has continuously increased and reached to USD 1092.

Table 1: Business Sectors growth and their contribution to GDP trend

Sector Growth type 2015/16 2016/17 2017/1 2018/19 2019/20 2020/21

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Agriculture Absolute Growth 2.3 6.7 3.5 3.8 4.3 5.5
Contribution to GDP growth .9 2.5 13 1.3 1.4 1.8
Contribution in % 11.3 24.6 16.5 14.6 22.8 29
Industry Absolute Growth 22.2 20.3 12.2 12.6 9.6 7.3
Contribution to GDP growth 4.7 4.8 3.1 3.6 2.6 2.1

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 Contribution in % 58.8 47.3 40.8 39.5 42.4 23.6
Service Absolute Growth 8.7 7.5 8.8 11 5.3 6.3
Contribution to GDP growth 3.4 3 3.4 4.1 2.1 2.4
Contribution in % 42.5 29.4 44 45.8 34.3 38.3
Source: Planning and Development Commission

4.2 General analysis of the market for Industry sector

The industrial sector showed a 7.3 percent annual growth and constituted a 29.3 percent share in
total GDP and it contributed 33.6 percent to the overall GDP growth. With 5.1 percent growth,
manufacturing accounted for 23.4 percent of the industrial output. The construction industry
registered 6.6 percent expansion with 72.2 percent share in industrial output, with roads,
railways, dams, and residential houses construction, playing a significant role. The growth
momentum in mining and quarrying sector continued in 2020/21 and saw a 115.4 percent
expansion partly due to conducive policy measures taken by the National Bank of Ethiopia to
incentivize the miners to opt for more formal marketing channels. Yet, its contribution to
industrial production is still minimal (1.8 percent). Meanwhile, electricity & water had a 2.7
percent share in industrial production.

Table 2: Industry subsector growth and contribution in percent

Rate Sub Sector 2016/17 2017/18 2018/19 2019/20 2020/21

Growth Mining & -29.8 -20.8 -21.9 91.4 115.4
rate in Quarry
industry Manufacturing 24.7 5.5 7.7 7.5 5.1
sector Electricity & 4.9 3.3 4.0 7.2 8.9
water
Construction 20.7 15.7 15.0 9.9 6.6
Share in Mining & 1.0 0.7 0.5 0.9 1.8
industry Quarry
Manufacturing 26.9 25.3 24.3 23.9 23.4

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 sector Electricity & 2.8 2.6 2.7 2.6 2.7
water
Construction 69.3 71.4 72.5 72.6 72.2
Source: Planning and Development Commission

4.3 Existing Water Supply and Demand gap

Ethiopian Public Health Institute 2019 report shows the drinking and sanitation water supply in
Ethiopia within 30 Km radius is 60 percent. This means 40 presents of the population suffer for
searching to both water for drinking and sanitation. Especially hot areas like Afar and Somali
region suffer more. If the radius accessibility decreases the water supply gap increases.
According to the report, people that live in the surrounding area of Addis Ababa and Dire-dawa
have good water access without considering the existing supply gap. According to Ethiopia
Globalwaters,org report only 29 percent of the Ethiopian population has access to basic water
while only 7 percent has access to basic sanitation.
Table 3: Drinking and sanitation water supply gap in Ethiopia
Region Percentage of Accessibility within 30 KM Radius Gap
Addis Ababa 93.7 6.3
Dire Dawa 80.1 19.9
Benishangul-Gomez 73.8 26.2
Tigray 65.5 34.5
Harari 65.4 34.6
Gambella 63.7 36.3
Amhara 57 43
SNNPR 54.2 45.8
Oromia 51.5 48.5
Afar 38.7 61.3
Somali 25.6 74.4
Average 39.16

4.4 Future water supply and demand gap

The water well expected that a minimum water supply capacity for domestic internal household

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use should be at least 600 gallons of water within a two-hour period once each day. This is
equivalent to a flow rate of 5 gallons per minute/GPM/for two hours. In other word, the
minimum water supply of a well per day is 39,600 liters (one gallon is equal to 5.5 liter).

Water supply and sanitation in Ethiopia Wikipedia indicate that per capita consumption of water
per day in respective of rural and urban are 15 and 20 liters. However, the average person uses
101.5 gallons of water which is equivalent to 558 liters (water.phila.gov).

According to the industry minister website, there are 88 private water well drilling service
providers registered in the industry. In addition, there were also 73 governmental and 11 NGOs
well rig exist in the country. This number includes government office, non-governmental
organization and private.
Table-4: Water Demand and Supply Gap in Liter per capita
Population Population Existing Supply Demand in
Year (In growth in Liter (In Liter (in Gap in Liter (in
s Million) rate Million) million) million)
2021 118 2.53% 123,915 23,594,861 23,470,945
2022 121 2.53% 127,051 24,191,811 24,064,760
2023 124 2.53% 130,265 24,803,864 24,673,599
2024 127 2.53% 133,561 25,431,401 25,297,841
2025 130 2.53% 136,940 26,074,816 25,937,876
2026 134 2.53% 140,404 26,734,509 26,594,104
2027 137 2.53% 143,956 27,410,892 27,266,935
2028 140 2.53% 147,599 28,104,387 27,956,789
2029 144 2.53% 151,333 28,815,428 28,664,095
2030 148 2.53% 155,162 29,544,459 29,389,297
Source: Ethiopia demographics 2021-statisticsTimes.com
Ethiopian Public Health Institute 2019 report
A Guide for Water Well Drilling Enterprises- field notes shows, If fully utilized water well
drilling equipment can construct over 100 wells per year. In India in the 1990s, private projects
were drilling about 150 wells per year. However, in case of Ethiopia this drilling well capacity

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per rig is not practical due to hard soil formation and aquifer depth.
As the tables below indicate, the water supply as well as well rig availability gap is very wide. In
order to reach per capita average water demand in the next 10 years, more than 2 million water
well developments are expected to be done. Existing rigs (assume one rig per registered
company & assume one well development per month) could develop 20,760 wells within 10 yrs.
This shows that additional much more rigs required in the industry. Considering the population
growth, the number of rigs required within 10 years is 170,065. Costing and Pricing

Table 5: Water well and rigs machine supply and demand

Existing rigs work
Additional well coverage (in No. of No of rigs
Years Required water well) Water well-gap Required
2021 1,646,391 2076 1,644,315 137,026
2022 41,654 2076 39,578 3,298
2023 42,708 2076 40,632 3,386
2024 43,788 2076 41,712 3,476
2025 44,896 2076 42,820 3,568
2026 46,032 2076 43,956 3,663
2027 47,196 2076 45,120 3,760
2028 48,390 2076 46,314 3,860
2029 49,615 2076 47,539 3,962
2030 50,870 2076 48,794 4,066

Note: The demand of wells for irrigation, industrialization and rehabilitate existing wells are not
considered in the demand and supply analysis of water and rigs machine analysis. If groundwater
for irrigation and rehabilitation of non-functional well assumed in the analysis both the rigs
machine and water well construction demand will be doubled.

Section 5: Technical Analysis

5.1 water resource Analysis

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Ethiopia is quite often mentioned as ‘water tower of Africa’ owing to the high surface water
flows which stands at 122 billion m3. Nevertheless, the contribution of other water sources (e.g.
rainwater, groundwater) in the water potential description of the country is rarely viewed
holistically. A holistic view of water resources availability in each terrain is to look at the water
balance-which refers to the amount of incoming water in various forms and the amount of loss of
water from the terrain. In Ethiopia rainwater remains the largest available water resource.
Estimates from the meteorological stations all over Ethiopia give an annual rainfall volume over
Ethiopia of 798 billion m3 /year. This is against the commonly held assumption that ‘Ethiopia is
endowed with rich surface water resources. Nevertheless, only a small fraction (15 %) of the
rainfall water converts to river discharge (from groundwater and surface waters). The remaining
85 % of incoming rain evaporates back (accounting for 668 billion m3 / year) from the
landscape. This water will ultimately form local rains or leaves the landscape as atmospheric
vapor. The remaining 3 % of incoming rainwater is used for green water use (2.5 billion m3) and
blue water use (5 billion m3 ). Green water is the water that is required for crops production and
blue water use is water that is used directly for domestic water supply, livestock watering,
industrial and non-industrial uses etc.

5.2 Geological Analysis

Over the last five decade alone over 3,500 scientific papers have been published regarding the
geology, geodynamics, tectonics, geomorphology, magmatism, hydrology, hydrogeology, and
environment. Most of the study made on projects Ethiopia has 1180-meter cub underground
water of which 640 is fresh water. in the global maps of groundwater or groundwater aquifers,
the Ethiopian aquifers are classified as the most complex, compartmentalized, and relatively low
storage aquifers (WHYMAP 2005). Two third of Ethiopia is covered by volcanic rocks. The rest
of Ethiopia is covered by Sedimentary and metamorphic aquifers. Table below shows salient
properties of these aquifers.

Table 6: Aquifer depth level and distribution in Ethiopia

Aquifer Type Depth Remark

Volcanic Shallow (30-100m) Very wide area coverage
Deep (100-250m)
Very deep (>250m)

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 Sedimentary Deep (100-250m) Wide area coverage
Very deep (>250m)
Metamorphic Very Shallow (0-30m) Wide area coverage
Shallow (30-100m)
Alluvio lacustrine sediments Very Shallow (0-30m) Small area coverage
and volcaniclastics Shallow (30-100m)
Ethiopian Groundwater Management Framework document

5.3 Benefit of groundwater

Surface waters are seasonal in their availability and respond immediately to climate change.
Groundwater plays much enhanced role in buffering seasonality and long-term trends. Beyond
this function as climate change buffer, groundwater also plays important strategic role as
instrument of reduction of rural poverty, as instrument of economic growth, as storage medium
for CO2 sequestration, as a tool of drought emergency response, as a tool in guaranteeing urban
water supply, as a tool in dealing with guarantying the sustenance of livelihood of pastoral
communities etc.

5.4 Well water drilling, design, development, and completion

A water borehole is not just a hole in the ground. It must be properly designed, professionally
constructed, and carefully drilled. Boreholes for extracting water consist essentially of a
vertically drilled hole, a strong lining to prevent collapse of the walls, which includes a means of
allowing clean water to enter the borehole space (screen), surface protection, and a means of
extracting water. Drilling by machine is an expensive process, and boreholes require professional
expertise for both their design and their construction. There are, however, compensations: this
method of extracting water has several significant advantages as stated in this study.

5.4.1 Drilling methods

Once a suitable site has been selected and borehole drilling decided on, the proper drilling
method must be chosen.

Most borehole applications in the field will require rotary drilling. True rotary drilling techniques
allow much deeper boreholes to be constructed, and use circulating fluids to cool and lubricate
the cutting tools and to remove debris from the hole. Circulating fluids usually take the form of

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compressed air or of pumped water with additives, such as commercial drilling muds or foams.
There are three types of rotary drilling, namely, Rotary drilling, direct circulation, Rotary DTH,
air circulation and Rotary, reverse circulation.

5.4.2 Choosing drilling equipment or rig

Once a drilling method has been selected, you must decide on the type of drilling equipment or
rig that best suit your situation.

The type of rig chosen may be determined based on the site geology, the anticipated depths of
the boreholes, and their expected diameters. Access is an important consideration. All drilling
machines require transportation: a road may have to be favorable to tigs

Table 7: Drilling Performance of Drilling Methods for Types of Formation

Types of Formation Drilling Methods

Cable & Tool Mud-rotary DTH (down the hole)
Dune Sand Difficult Rapid Not recommended
Loos sand & Gravel Difficult Rapid Not recommended
Quick-Sand Difficult Rapid Not recommended
Loose boulder in alluvial fine or glacial drift Difficult Difficult Not recommended
Clay & Silt Slow Rapid Not recommended
Project Shale Slow Rapid Not recommended
Sticky Shal Slow Rapid Not recommended
Brittle Shale Slow Rapid Not recommended
Sandstone poorly cemented Slow Rapid Not recommended
Sandstone very cemented Fair Slow Not recommended
Chert nodules Slow Slow Not recommended
Limestone Slow Rapid Very good
Limestone with Chert nodules Very slow Slow Very good
Limestone with small fracture Very slow Slow Very good
Limestone cavernous Very slow impossible Difficult
Dolomite Very slow Rapid Very rapid
Basalts thin layer sediments Slow Slow Very rapid
Basalts thick layer sediments Slow Slow Very rapid
Metamorphic Slow Slow Very rapid

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 Granite Slow Slow Very rapid

Source: Drilling training and reference note

5.4.3 Borehole construction

Once the drilling method and the equipment have been chosen, you will be required to observe
and monitor the construction of the borehole. This is done by observation of the deribs come out
from borehole and done actions such as adding chemicals such as water, salt, or bentonite
(calcium montmorillonite) to cool the machine and increaser viscosity and forms a mud cake
lining in the borehole. The viscosity of drilling mud can be easily and frequently checked by
means of a simple viscometer. During air drilling During air drilling, foams or soap bubbles can
be added through the drill pipes to eliminate dust emerging from a dry hole, to keep the borehole
clean, and to prevent fine particles from clogging any small water-bearing fissures.

5.4.4 Borehole design

i) Borehole casing

Boreholes are constructed by inserting lengths of protective permanent casing. These are lowered
or pushed into the hole by the drilling rig to the required depth; the lengths of casing may be
joined together by means of screw threads, flange-and-spigot, gluing, riveting, or welding.
Casing normally extends up to the surface, with a certain amount (say 0.7 meter) standing above
ground level. Lengths of casing may be obtained in mild steel, stainless steel, and plastic (such as
UPVC, ABS, polypropylene, and glass-reinforced plastics). Plastic casings are more fragile and
deformable than steel casings (especially the screw threads), and so should be used mainly for
low-yield and shallow boreholes. The casing should be capable of withstanding the maximum
hydraulic load to which it is likely to be subjected, that is, about 10 kilopascals (kPa) for each
meter that extends below the water level down to the maximum expected drawdown.

ii) Borehole well screens

When a borehole has been dug alongside a water-bearing zone, the casing installed in it must
have apertures that allow water to enter as efficiently as possible while holding back material
from the formation. These perforated sections are known as borehole or well screens; they come
in sizes and joints similar to casing, so can be interconnected with suitable plain casing in any

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combination, or ‘string.’ Screens can also be obtained with a variety of aperture (slot) shapes and
sizes, from simple straight slots to more complex bridge slots and wire-wound screens made with
V-cross section wire. Screen slots should be of a regular size, aperture, and shape because they
might have to efficiently prevent all particles of a certain size from getting through. Plain plastic
casing can be easily slotted with a saw or special slotting machine, but beware again of drilling
contractors cutting irregular, messy slots in steel casing with grinders or oxyacetylene torches.
The open area of factory-made plastic screens commonly exceeds 10% of total surface area, but
rough-cut holes in mild steel casing rarely take up more than 2 or 3%.

iii) Gravel pack

After the casing and screen string have been inserted, natural material will tend to fall from the
walls of the borehole into the annular space, forming a natural backfill or ‘gravel pack’ that helps
to filter incoming water. The screen slot sizes should be such that only the finer content of this
backfill is allowed into the borehole; this can be washed out during development, leaving the
coarser portion behind to act as a filter. Thus, an aquifer is suitable for the development of a
natural gravel pack if it is coarse-grained and poorly sorted, as many alluvial gravels are (a
relatively rare situation). A borehole drilled into an unstable aquifer formation, or into one that is
well sorted, and with a high proportion of fines (which would be apparent from the drill
samples), will require an artificial gravel pack around the screens. When the only screens
available on site are of a slot size larger than the average grain size of the aquifer, then a gravel
pack should be installed.

iv) Pump selection

One also needs to consider what type of pump is to be used in the borehole as well as its size and
the casing and screen diameters needed to house it. Relatively low-yield boreholes intended for
hand-pumps with submerged pistons are rarely more than 30 metres deep and need not be of
large diameter (4 inches can be enough). The standard practice is to place the pump inlet slightly
above the upper end of the screen. More powerful types of pump, such as electric submersibles
and rotary positive displacement pumps, must always be installed inside protective plain casing:
screens are not appropriate for this purpose. The internal diameter of the pump chamber should
be at least 5 centimeters (about 2 inches) greater than the external diameter of the pump.

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 v) Sealing the borehole

The borehole structure must be sealed at the top of the casing with a ‘sanitary seal’; it can also be
sealed at the bottom to eliminate the possibility of material entering through any means other
than the screen(s). With plastic casing this can be done by attaching a ‘closing cap’ to the bottom
end.

5.4.5Borehole development

Whether a borehole has been drilled using mud or air circulation, it will have to be cleaned out.
After the installation of the permanent casing, screens, and gravel packs (if any), dirty water,
mud, crushed rock, oil (from the drilling machinery), and perhaps other debris will be left in the
hole. Development can also repair damage done to the adjacent aquifer by the drilling process,
develop the aquifer (increase transmissivity), and enhance the performance of the borehole.

Development has two broad objectives:

1. repair damage done to the formation by the drilling operation so that the natural hydraulic
properties are restored, and

2. alter the basic physical characteristics of the aquifer near the borehole so that water will flow
more freely to a well.

In most cases, development entails the surging and blowing of compressed air; the process may
be helped along using additives, which can assist in breaking down drilling mud.

Bentonite-based muds are particularly difficult to remove; organic polymers are biodegradable
and, in theory, are destroyed by bacteria with which wells can be seriously infected. Chlorine-
rich compounds are effective mud dispersants, as well as bacterial disinfectants. Calcium
hypochlorite (HTH or High-test hypochlorite) can be used as a mud dispersant; for rapid
breakdown of guar gum, use a hypochlorite solution (12% chlorine) at about 0.4% mix in water.
For slow dispersal, a weak solution of hydrogen peroxide may be used. Bentonite is more
efficiently dispersed using polyphosphate compounds like Calgon (brand name for water
softener). Development of wells drilled into calcareous (limestone, chalk, or dolomite)

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formations can be aided using certain acids (such as hydrochloric acid, HCl) that dissolve
pulverized carbonate smear on borehole walls.

The technique of surging (or surge pumping) consists of forcing water up and down a borehole
and, more importantly, back and forth through the screens, gravel pack, and adjacent aquifer
matrix. It is done by the rig compressor.

The overall water borehole development process passes the following process as required: Mud
dispersants, Acid treatment, Surging, Blowing yield, Air-lift pumping, Jet washing, and
Mechanical cleaning.

Section 6: Competitive Analysis

6.1 General competitive analyses

Now, there is no monopoly or captive market in the world. This means that every business has its
competitor or rivalry. Currently the topmost competition factors are customer satisfaction,
human resources and technology. As stated above there are 88 licensed private drilling
companies in Ethiopia. According to our field assessment, most water wells do not properly
work especially in hot season and provide very low water supply. The researchers also show that
the success rate of well water development is 70-80%. The reasons for this failure rate (20-30%)
are rig machine capacity gap, well drilling experience gap and sometimes greediness for excess
profit. The reasons for this are rig machine capacity gap, well drilling experience gap and
sometimes greediness for excess profit.

Marketing in well water construction is not done in depth assuming that drinking and sanitation
water supply is the only responsibility of the government. Except for a few, most of the private
drilling companies have no website or address in the yellow book of the country. In addition,
water well drilling coverage in Ethiopian hot and rural areas is very minimal.

According to our observations, staffs that work on electric and plumbing activity work
engagement is low comparing to other staff. So, creating multidisciplinary staff in the

17
organization and decrease operating cost is one of the means of increasing price competitiveness
of the company.

So, the main market competition strategy of the envisage business is customer satisfaction by
availing world art & cost-effective rigs, hire sufficiently experienced or qualified staff, set
attractive price and work for good reputation of the company than profit.

Table 8: Water well project success rate

S.No. Region Boreholes

Total Not Function %
1 Beneshangule 0
2 Gmbela 78 63
3 Somali 56 34
4 SNNPRS 467 38
5 Oromia 410 42
6 Amhara 27
7 Tigray 433 14
Total 1471 33

6.2 Strength, weakness, opportunity & trait analysis

Each project has its strengths and weakness and external opportunity and trait.

Strength: promoter commitment, use latest technology, recruited potential employee, value
customer satisfaction, understanding the business aspect, identify customer segment, design
short- and long-term plan, design proper marketing strategy are some of the current project
strengths.

Weakness: new for the business that will be improved by theory and practical training as well as
recruited competent staff that work in the business.

18
Opportunity: there is much potential service market demand in the country, government support
(lease law), extended bank support, special tax treatment, availability of university graduated
potential manpower etc. The most attractive groundwater types for bottled water production are
naturally sparkling waters with high natural CO2. These kinds of waters are rare worldwide.

Trait: country instability, competitor rivalry, corruption.

Section 7: Environmental Impact Analysis

According to EIA studies on related projects, the investment has no significant impacts that it
does not entail any displacement to dwellers of an area and does not incur deforestation.
However, the project may bring undersized air and sound pollution where the project will be
performed. But in comparison with the advantages that the project will bring, these
environmental effects are very small.

Section 8: Manpower & organizational structure

8.1 Availability of technical manpower

‘Water-centered development’ is explicitly seen as the entry point for growth and improved
livelihoods in Ethiopia. Increasingly water resource development is integrated with economic
development and land use planning.

The capacity of universities to deliver BSc and MSc graduates in applied hydrogeology,
groundwater management and water supply engineering have accelerated. This is currently being
done under several program –the Ethiopian Capacity Building Project that strengthens technical
training in five universities.

Popularizing manual drilling and related low lift techniques are linked to the course offered in
TVETs – especially those in high potential area. Non-government organization such as Japan

19
International Cooperation Agency (JICA) has involved in capacity building of manpower in
groundwater development.

8.2 Organization structure and Manpower requirement

The well drilling service requires both well construction technicians and administrative
manpower. The project will have one general manager who has well developed water well
construction competency. In addition to the above, the assigned manager expected to have
overall company administrative capacity. The project also will have two section heads, namely
technical and administrative heads, that report to the general manager. The administrator section
head is responsible for accounting, recording, marketing and human resource issues whereas the
technical head is responsible for overall well construction order and machine performance.
Contract pricing and follow up are done with the collaboration of technical and administrative
section heads and finally reviewed by the general manager of the company.
The total manpower required is 25 persons. A detail of manpower requirement and estimated
annual salary expenditure including fringe benefits is given on Table 9.

Organization Chart of the company

SHAREHOLDERS

GENERAL MANAGER

Accounting & Technical Management

Administration section Section head
head

20
Table 9:Manpower requirement and annual salary expenditure
Qualification No. Monthly
Job Title Annual Salary
employee Salary
General Manager MSC 1 10,000.00 120,000.00
Storekeeper Diploma - Accounting 1 4,000.00 48,000.00
Accountant Degree in Accounting 1 8,000.00 96,000.00
Casher diploma in accounting 1 2,000.00 24,000.00
Operator Certificate in Drilling 3 5,000.00 180,000.00
Laborer 4 1,500.00 72,000.00
Mechanic Diploma in mechanics 1 5,000.00 60,000.00
Guard 3 1,000.00 36,000.00
Heavy duty/ special
Driver vehicles Driving 2 2,000.00 48,000.00
license
Total 17 684,000.00
25% benefits 171,000.00
Grand Total 855,000.00

21
Section 9: Products and Services

Plan and strategy are the main roadmap of any business that leads to the expected goal
achievement. The project has long and short-term product or service plan.

In the short-run, shallow, medium and depth water well drilling service will be provided based
on the customer demand and geology study. This service includes drilling, casing, and
submersible pump installation. Rehabilitation of old or having construction problem water well
service is grouped in short term service of the project.

In the long run the project planned to provide any business relating to ground-water searching
such as geology study service, water test service, water treatment service, waterline extension
service, casing materials production, fittings production, supply rigs and accessories as sole
agent of brand producers.

Section 10: Marketing Plan & Strategy

As the project service is delivery in type, the market is planned to reach around the country,
Ethiopia. However, rural and remote areas are the project’s focused customer segment. In these
areas the competition is expected to be low and high service demand, according to the supply
and demand analysis. The project will follow and participate in any water well construction
government or private bids.

To reach the customer, the project plans to use formal and informal communication strategies.
The first and the priory one is designing website for the project followed by promoting the
project with cheap but wide access media such as regional FM. Next to it create relationships
with regional water and sewerage offices, potential private factory owners, potential formal and
informal associations, and potential persons. Different social Medias also the projects service
promoting mechanisms. The project also highly works on customer satisfaction to gain referral
(person to person) promotion. In sometimes the project will engaged in sponsorship activities.

22
Section 11: Policy Analysis

Civil Code of Ethiopia Section 3, in the title of ownership and use of water stated as follows

Art. 1232. - Domenic use. - I. right of owner. A landowner may use the water on, below, running
through or bordering his land for his personal use, that of the person8 living with him and for
watering his cattle.

Art. 1233. - 2. Right of neighbors. A landowner who has water in excess of what he requires for
domestic purposes shall give his neighbors the water indispensable for their domestic use, where
they cannot get water elsewhere except at exaggerated costs.

Art. 1229. - Appropriation of water. Water shall be private property where it is collected in man-
made reservoir, basin, or cistern from which it does not flow naturally.

Art. 1255. - Underground water.

(1) Underground accumulations of water and rivers shall form part of the public domain.

(2) No person may without permission construct on his land a drilling exceeding one hundred
meters in depth.

For the case of fund, CAPITAL GOODS LEASING BUSINESS PROCLAMATION NO.1
03/1998, provide alternative of financial support such as Financial and operational lease for those
investors who have desire, knowledge, and profession to participate in various production and
service investment activities.

Section 12: Raw materials and accessory supply

The major raw materials that are used for water well development are casing, screening, gravel,
cement, bentonite, and electrode. Submersible water pumps are also considered as finishing
material for water well development.

23
 Materials such as gravel and cement are supplied locally whereas the rest of the raw materials
and equipment for water well development are expected to be imported from international
competitive market abroad.

As immense water well development material producer and wholesaler in the world market,
shortage of raw materials supply is unexpected.

For the case of accessory, the project will purchase accessories that serve for two years as a
package/set and select suppliers that could serve long run after sale service.

Section 13: Project Time plan

The project implementation plan consists of organization legal establishment, shade
construction/rent, bank loan process, machine purchase process and machine commission/testing
process. Time assigns for project legal establishment one month, shade construction or rent one
month, bank loan process one month, machine and raw materials procurement process three
months or one Letter of credit period, and commissioning half months. The total implementation
time plan is five and half months.

Table 10: Gantt-chart of project implementation

Projection project implementation in consecutive month

Planed Activities
M-1 M-2 M-3 M-4 M-5 M-5 M-6
Legal embellishment of the
company
Shade construction or Rent
Bank facility process
Machine procurement process
Material Procurement Process
Commissioning test

Section 14: Construction scope

The construction of water well has five phases. First well drilling based on the given geology
study, followed by screening & casing, testing/installing pump, disinfecting and finally water

24
line extension works. However, the first three stages are would be apply in the short term
business plan.

Section 15: Socio-Economic value

The project will have a great impact on community health and development. Supply of water at
expected demand and quality would decrease water born disease and improve the community
health. This, in return, will increase productivity per capita as well as decrease medical costs of
the community. In addition to the project GDP contribution to the country, it provides great
economic value as a source of livelihood generation especially for rural area as the form of
irrigation farm. Moreover, the project creates job opportunity for the citizen as well as generates
income tax for the government.

Section 16: Financial Aspects

16.1 Total project Cost

The project has foreign and local cost components. The foreign component cost is by far more
than the local component cost due to the non-existence of water work machine & input
manufacturers in the country.

The project total cost is Birr 44.8 million. The contribution of machine, working capital and
office furniture &machine equipment are Birr 41.3, 2.24 and 1.26 million respectively. The rigs
that mounted in truck costnearly42 million which is 92 percent of the project cost.

16.2 Source of Fund

As the table below, the huge investment cost which is machinery and equipment is planned to
cover by Development Bank of Ethiopia by lease modality. The rest working capital and office
facility are planned to be covered by promoters’ own source of fund.

Table 11: Investment category & Source of fund

S.No. Kind of Investment Source of fund Amount

1 Machine & Equipment DBE 38.0 million
2 Working Capital Promoter 2.15 million

25
 3 Office facilities Promoter .059 million
Total 40.4 million

Section 17: Machine, truck, equipment, and office facilities

Drilling pipes, casings, Drilling hammers, generators have great load that couldn’t easily upload
and download to or from truck to be move to a project site or feed to the rigs during well
development. Besides, the rigs do not leave a project site before pump test is being made. Pump
test will take more than one week time which is equivalent to one well drilling time.

The truck that holds the rigs have no place as well as loading capacity to add well construction
inputs such as water, oil, cases, cement, gravel, chemicals, working tools etc. The rig truck also
could not provide transport service for all well drilling site workers and required equipment and
necessary drilling parts.

1. Rigs (including compressor, mud-pump, generator and carry truck)

It is the main machine that drills water well and places well protecting materials.

2. Crane (including carry truck)

This machine supports loading and unloading heavy materials that couldn’t managed by workers
and rig machine itself such as drilling pipe, drilling hammer, casings, submersible pump
installation and the like. Support submersible pump test installation decreases the idle time of the
rigs by one week per well construction i.e., the crane replaces the rig’s function while the pump
test of the water well being made. It also decreases the risk of test pump drop down in the well
bottom (having proper holding hook) as well as decrease test error (maintain balancing). It also
serves as dump truck to avoid/cart away/ solid materials from drilling site. Moreover, the truck
will serve loading and moving water well development materials such as drilling pipe, Drilling
hammer, casing, generator cement, gravel, chemical, generator for test for mud-pump, water
tanker, oil tanker, working tools, etc.

3. Test Pump & Generator

26
Most of water well contract ends at the well water pump testing or submersible pump
installation. For this purpose, two test pump in different diameter is required to be part of capital
goods part. Besides, generator that provide power to function the pump test also plan to be
incorporated in the investment part.

4. Equipment (water detector, well logger, deep meter)

Technologies that add value the water drilling work operation by providing information such as
detect the underground water available site (indicating quantity and quality), the soil formation
of the drilling site well, the depth of well, PH meter, etc should be available. Most of the
technologies are working using power. So, the test pump generator plans to be power source for
those devices.

Table12: Machine and Equipment Component

Bank,
transport
and Total Cost
SR.N installation (ETB @ 53
O ITEMS Unit QTY Price (USD) cost 5% Total USD Per USD)

Water Well 557,500.00 27,875.00 585,375.00 32,781,000

2 Drilling set 1
Crane Mounted 68,200.00 3,410.00 71,610.00 4,010,160
3 on truck set 1
5,000.00 250.00 5,250.00 294,000
4 Generator set 1
1,500.00 75.00 1,575.00 88,200
5 Test PUMP set 2
Welding &
Grinding 1,000.00 50.00 1,050.00 58,800
6 Machine set 1
10,000.00 500.00 10,500.00 588,000
7 Water detector set 1
3,000.00 150.00 3,150.00 176,400
8 Water logger set 1
Water deep 1,000.00 50.00 1,050.00 58,800
9 meter set 1
10 PH meter set 1 50.00 2.50 52.50 2,940

27
 Mud
Versatility 1,000.00 50.00 1,050.00 58,800
11 Meter set 1
38,055,360
Total
Note:1 Cost of some machines such as water logger, water deep meter and welding machine will
be included in rig price as a set.
Note:2 Items that used while the business expansion stage is already considered in the list
Note:3 The machine has its light and welding power source so it may not need generator

Section 18: Office furniture & Equipment

As the project nature, most of the employee of the staff passes their working time in the field or
out of office. As a result, the number of procurements of furniture and equipment are very
minimal; the total plan cost of office furniture and equipment is birr 159 thousand.

Table 13: List of Office furniture & Equipment

SR.NO ITEMS No. Value Total Value

1 OFFICE CHAIR 3 4,000 12,000.00
2 OFFICE TABLE 3 1,020 3,060.00
3 GUEST CHAIR 5 1,200 6,000.00
4 COMPUTER 2 10,250 20,500.00
5 Printer 2 3,000 6,000.00
6 FILLING CABINET 3 3,840 11,520.00
Total 59,080.00

Section 19: Production cost

To know the viability of the project, the market price of raw material, utility, salary and other
administrative costs are assessed and held with contingency. Very detailed cost component items
are also considered.

Production cost is determined based on a 300-meter water well that will develop per month per
rig. The total cost for one well’s construction is near to Birr 2.12 million. Considering the well

28
construction cost (2.12million) and well construction depth 300 Meter, the water well production
cost per meter is Birr 7,081.51

Table14: Production cost for 300 Meter water well construction

Description Unit of Measurement Price per measurement Price Per 300 m well
Raw materials
Casing Meter 11 usd/m 165,000.00
screening Meter 12 usd/m 36,000.00
Gravel cubic meter 100 Birr/meter cub 10,000.00
cement bag 400 Birr/bag 12,000.00
Bentonite bag 35 usd/bag 4,200.00
Water Pump No. 10000 Birr/unit 10,000.00
Electrode & disc pack 4000 Birr/Unit 4,000.00
Total 241,200.00
Utility
Fuel LIT 70 Birr/Liter 85,400.00
Lubricant KG 300 Birr/kg 3000
Total 88,400.00
Rent cost
Office 10,000 Birr/Month 10,000.00
Machine Rent Birr/Month 812,033.98
Salary 71205 Birr/Month 71,250.00
Per diem 22,500 Birr/Month 22,500.00
Maintenance 25,000 Birr/Month 25,000.00
Replacement 120,000/well 145,000.00
Insurance 2% capital original cost 70,868.42
Miscellaneous 50,000 Birr/Month 50,000.00

29
 Total 1,206,652.40
Grand Total 1,536,252.40

Section 20: Construction Contract Price Analysis

The construction price development assessment is made based on government water construction
price, macroeconomic condition and private company trends.

Regional water construction companies’ contract document three years (2018-2020) 910 wells
construction information shows that for the total depth of 121,593 meters, the price charge was
birr 739 million. This mean that in general the average price of a meter drilling was birr 6077. In
other view, without considering the well depth length, the drilling price for a well is Birr .82
million.

According to country macro trends, Ethiopia inflation rate for 2021 was 26.84%, a 6.48%
increase from 2020. Ethiopia inflation rate for 2020 was 20.36%, a 4.55% increase from 2019.
Ethiopia inflation rate for 2019 was 15.81%, a 1.98% increase from 2018. If we update the
construction price by 2021 inflation rate, it will be Birr 7,709. 2022 inflation rate due to different
factors rises to 100% compared to 2021 price (observation).

According to the data that was collected from five drilling companies, the water well drilling
contract price per meter is in the range of Birr 25,000 to 59,000. The average contract price per
meter is Birr 34,101.

Table 15: competitor drilling price

Derba
water well Tis Isat CGC Overseas Drilling and
Drilling drilling Water Alliance construction Hydrology
Companies enterprises Works Trading Ethiopia LTD Plc.
Pricing/100 Meter 2 2,683,8 5,596, 3,3
depth well ,554,584 2,858,194 40 910 57,000

30
As far as the current price being considered for the cost of raw materials determination, and the
current private drilling price is very high due to lack of competition, the project drilling price is
assumed to be Birr 12,000 which is very fair compared to the existing competitor’s price.

Table16: water well construction contract price (2018-2020)

Drilling Price
per well (in Total price (in Total well
Year Depth type # Well Depth Thousands) Thousands) drill in meter
2020 High 20 457 2,706 54,124 9,140
2020 Medium 29 314 1,707 49,496 9,106
2020 Deep 60 228 2,619 157,140 13,680
2020 Shallow 162 57 189 30,618 9,234
2019 High 13 489 3,585 46,601 6,357
2019 Medium 28 225 1,600 44,800 6,300
2019 Deep 67 204 1,541 103,247 13,668
2019 Shallow 180 55 146 26,280 9,900
2018 High 17 438 2,818 47,908 7,446
2018 Medium 28 225 1,600 44,800 6,300
2018 Deep 70 243 1,519 106,330 17,010
2018 Shallow 236 57 117 27,612 13,452
910 738,956 121,593

31
Section 21: Financial Analysis
21.1 Income Statement

Six years income statement projection has been prepared for project viability checking. In each
projection year, on average, Birr 20.7 million net profits being observed. Besides, the project is
also expected to generate an average tax yearly revenue of Birr 8.9 million to the government.
Within Six years, the project plans to generate a total net income of birr 103 million and total
government tax of Birr 44 million. This shows that the project could be financially viable
throughout the project life.

21.2 Balance Sheet Projection

Same to income statement projection, the balance sheet projection for 6 years has been made to
see the project liquidity and capital condition of the project. The balance sheet projection shows
that the project will have more than adequate liquidity and capital strength in any projection year.
At the end of the 6th year, the project will have birr 105million value of assets after offsetting its
overall liabilities.

21.3 Cash flaw projection

Cash flaw is one of the major measurement project viabilities of the project. This shows the in
and out of cash from operating, investing, and financing activities of the project. Managing the
project’s cash flow by itself could decrease the financing cost. The six-year cash flaw projection
shows that the project will have adequate cash flow that covers each obligation without any
additional fiancé. Besides, the project’s cash flaw shows excess cash that could be invested in
other business in the form of short/long investment. At the end of the 6 th year, the project will
have Birr 103 and 64 million aggregate cash flow before and after discount.

Section 22: Working Capital

32
working capital is the money available to meet your current, short-term obligations. To make
sure the project working capital is enough to precede the business, it will need to calculate the
project current level of performance, projected future needs, and consider ways to make sure
always have enough cash. Based on this assumption the project is developing a practical and
detailed working capital requirement sheet. The result shows that the working capital
requirement for 3 months is Birr 2.24 million.

Table 17: Working Capital requirement fact sheet

Unit of Price per Price Per Total

Description Period Measurement measurement 300 m well Cost
Raw
Material
Casing 3 months Meter 11 usd/m 165,000 495,000
screening 3 months Meter 12 usd/m 36,000 108,000
Gravel cubic meter 100 Birr/meter cub 1,000 1,000
cement 3 months bag 400 Birr/bag 1,600 4,800
Bentonite 3 months bag 35 usd/bag 4,200 12,600
Water Pump 3 months No. 10000 Birr/unit 10,000 30,000
Electrode &
disc 3 months pack 4000 Birr/Unit 4,000 12,000
Total 221,800 663,400

Utility -
Fuel 3 months LIT 70 Birr/Liter 85,400 256,200
Lubricant 3 months KG 300 Birr/kg 3,000 9,000
Total 88,400 265,200

Rent cost -
Office 3 months 10,000 Birr/Month 10,000 30,000

33
 Machine
Rent 3 month Service Charge -
Salary 3 months 71,520 Birr/Month 71,250 213,750
Perdium 3 months 22,500 Birr/Month 22,500 67,500

Maintenance -

Replacement -
2% capital original
Insurance 1 year cost 761,107 761,107
Miscellaneou
s 3 months 50,000 Birr/Month 50,000 150,000
1,222,35
Total 914,857 7
2,150,95
Grand Total 1,225,057 7

Section 23: Project Opportunity Cost Analysis

I. Payback Period (PB)

Payback period in capital budgeting refers to the time required to recoup the funds expended
in an investment. The initial investment cost of Birr 40.4 millionof the project would be
recovered in 3 years using a discount rate of 15%.

II. Net Present Value (NPV)

The net present value or net present worth applies to a series of cash flows occurring at
different times. The present value of a cash flow depends on the interval of time between
now and the cash flow. It also depends on the discount rate. NPV accounts for the time value
of money. At a 15% discount rate applied on the project cash flow the project has 27 million
Net present values (NPV) at the end of 6 business years.

III. Internal rate of return (IRR)

Internal rate of return (IRR) is a financial metric used to measure the profitability of an
investment over a specific period of time and is expressed as a percentage. Internal rate of
return for birr 40.4 million investment of the project for 6 years is 21%.

34
IV. Return on Capital (ROC)

The return on assets shows the percentage of how profitable a company's assets are in
generating revenue. At the end of each year, the project will have birr 19.4 million return on
capital, which is 818%.

V. Return on Asset/Investment (ROI)

The return on assets shows the percentage of how profitable a company's assets are in
generating revenue. At the end of fiscal year, the project will have birr 19.4 million return on
asset which is 48%.

VI. Breakeven Point (BP)

The breakeven point is calculated by dividing the fixed costs of production by the price per
unit minus the variable costs of production..Using breakeven point by unit (number of well-
constructed) computation method, the project reached its breakeven point at 2.978 well
constructions in a year. As fraction of unit is not applied in this case, the breakeven point of
the project is 3 well constructions per year.

VII. Sensitivity Analysis (increase 5% cost & decrease price by 5%)

Sensitivity analysis is a financial model that determines how target variables are affected
based on changes in other variables known as input variables. In this case profit is a target
variable that could be affected by price and cost changes in the market. The project is still
viable at increase of cost in 5% and decreasing of price by 5%.

35
Section 24: Conclusion and recommendation
 29 percent of the Ethiopian population has access to basic water while only 7 percent
has access to basic sanitation within reasonable distance.
 Only 60 % of the population can get basic and sanitation water with in 30 Kilometer
radius.
 Drinking and sanitation water demand always increase with population growth, and
urbanization
 There is well documented evidence that the very wellbeing of some part of
community in Ethiopia is strongly linked to groundwater resources.
 Water wells need timely rehabilitation to maintain or increase their water supply.
 The industry sector, especially construction subsector performance shows betterment
from time to time and contributes to the major GDP growth of the country.
 Water is the major input for agriculture, industry, and service sector development
 Ethiopia has 1180-meter cub untouched underground water of which 640 is fresh
water (naturally sparkling waters with high natural CO2). This groundwater could be
renewable due to the country’s high annual rainfall.

36
  Two third of Ethiopia is covered by volcanic rocks and the rest of Ethiopia is covered
by Sedimentary and metamorphic aquifers.
 Aquifers depth in Ethiopia is relatively deep
 Investment in water well construction is supported by country law
 Construction of water wells has no environmental impact however great benefit for
green economy.
 The number of private investors in the water development sector is so limited.
 The promoter has a very good qualifications and experience in business
 The project as a great impact on community health and development.
 The project is financially feasible, economical viable and socially desirable
22 Recommendation:
Whereas water is the major component of human life and country development,
Whereas Ethiopia has naturally gifted fresh underground water resources,
Whereas the government of Ethiopia support the investment of water wells construction
by law,
Whereas there is very low drinking and sanitation water supply in the country,
Whereas investors in the water well construction area are very few and low competition,
Whereas invest on water well construction subsector is financially feasible, economical
viable and socially desirable, and
Whereas the country ground soil formation mostly volcanic rock and deep aquifers,
This is, therefore, the project is very feasible and bankable as far as heavy-duty rigs (drill
either Mud and/or Air methods) is or are procured and commissioned properly.

37
Section 25: Facts & Assumptions

 Exchange rate of Birr 56 per USD being used

 Charges such as bank, after FOB, transport and exchange rate difference in total assumed
to be 5% of invoice value.
 The current DBE’s project finance interest rate is used as base for service charge for the
lease (12% per annum)
 Rent repayment period assumed to be quarter base cover the period of 6 years
 Average drilling per hour is assumed to be 10 meters and fuel consumption per hour for
rig 33 liter (Rig 5L/Hr., Compressor or Mud-pump 28L/Hr. And generator 1L/Hr per
day)
 Depreciation for office furniture and equipment assumed to be 10% per annum.
 Cost and Price change assumed to be same for 6 years for simplicity as well as both are
raised as same times in proportionally i.e., price rise while cost escalation being happened
 Total cost per Meter well depth is Birr 5,121 which is derived from cost breakdown.

38
 Miscellaneous costs include site clearing, electric wire, operational pipe oil and water
tanker etc.
 Drilling bit and truck tyer assumed to be replaced at 1500-meter drilling and one year
service respectively
 A two percent insurance payment on capital goods original cost per year is assumed
 Average price per meter well is assumed to be birr 12,000
 Average rigs truck trips per well construction 500 KM and fuel consumption per 5Km is
1L
 Average crane truck trips per well 500 KM and fuel consumption per 5Km is 1L
 The consumption of fuel for rig and compressor and truck 5L & 28L per hour
respectively
 Truck fuel consumption is assumed to be 5L per kilometer
 The generator fuel consumption is assumed to be 1 liter per hour and work for only 3
hours per day during site work at night and pump test.
 Fuel cost per liter assumed to be birr 70
 Perduim for 20 days at Birr 500 assumed to be as construction cost
 60 Birr/ USD is assumed for Imported raw materials abroad, if any.
 No dividend or owner cash withdrawal, additional borrowing and investment being made
within the first 6-year project period.
 Population growth of the country is 2.33 percent per annum.
 Cash discount rate 15%
 Assets that obtain in the form of lease/rent not included as the company asset and
investment item during financial report projection.

39
 Section 26: Annex

I. Six years Balance Sheet Projection

Description Period
A. Assets

Initial
current assets investment Year - 1 Year - 2 Year - 3 Year - 4 Year - 5 Year - 6
34,003,93
Cash 2,150,957 16,735,578 1 51,805,059 70,138,962 89,005,640 108,455,493
Inventory 1,318,400 1,318,400 1,318,400 1,318,400 1,318,400 1,318,400
35,322,33
Total C. Assets 2,150,957 18,053,978 1 53,123,459 71,457,362 90,324,040 109,773,893
Fixed assets
Furniture & 59,080 59,079 59,079 59,079 59,079 59,079 59,079

40
ICT equipment
Accumulated
Depreciation -11,816 -23,632 -35,447 -47,263 -59,079 -59,079
Total Fixed
Assets 59,080 47,263 35,447 23,632 11,816 - -
35,357,77
Total Assets 2,210,037 18,101,241 8 53,147,091 71,469,178 90,324,040 109,773,893
B. LIABILITY
Other Payable 443,200 443,200 443,200 443,200 443,200 455,016
Total Liability - 443,200 443,200 443,200 443,200 443,200 455,016
C. CAPITAL
Equity
contribution 2,210,037 934,279 934,279 934,279 934,279 934,279 934,279
Retained 33,980,29
earning 16,723,762 9 51,769,612 70,091,699 88,946,561 108,384,599
34,914,57
Total Capital 2,210,037 17,658,041 8 52,703,891 71,025,978 89,880,840 109,318,878
Total Liability 35,357,77
& Capital 2,210,037 18,101,241 8 53,147,091 71,469,178 90,324,040 109,773,893

II. Six years Income Statement Projection

Description Year-1 Year-2 Year-3 Year-4 Year-5 Year-6

43,200,00
Revenue 43,200,000 43,200,000 43,200,000 43,200,000 43,200,000 0
Costs
Raw Material
Casing 1,980,000 1,980,000 1,980,000 1,980,000 1,980,000 1,980,000
screening 432,000 432,000 432,000 432,000 432,000 432,000
Gravel 120,000 120,000 120,000 120,000 120,000 120,000
cement 144,000 144,000 144,000 144,000 144,000 144,000
Bentonite 50,400 50,400 50,400 50,400 50,400 50,400
Water Pump 120,000 120,000 120,000 120,000 120,000 120,000
Electrode 120,000 120,000 120,000 120,000 120,000 48,000
Total 2,966,400 2,966,400 2,966,400 2,966,400 2,966,400 2,894,400

41
 Utility - - - - -
Fuel 1,024,800 1,024,800 1,024,800 1,024,800 1,024,800 1,024,800
Lubricant 36,000 36,000 36,000 36,000 36,000 36,000
Total 1,060,800 1,060,800 1,060,800 1,060,800 1,060,800 1,060,800
Rent cost
Office 120,000 120,000 120,000 120,000 120,000 120,000
Machine Rent 10,623,788 9,862,681 9,101,574 8,340,466 7,579,359 6,818,252
Salary 855,000 855,000 855,000 855,000 855,000 855,000
Perdium 270,000 270,000 270,000 270,000 270,000 270,000
Maintenance 300,000 300,000 300,000 300,000 300,000 300,000
Replacement 1,740,000 1,740,000 1,740,000 1,740,000 1,740,000 1,740,000
Insurance 761,107 761,107 761,107 761,107 761,107 761,107
Miscellaneous 600,000 600,000 600,000 600,000 600,000 600,000
Depreciation 11,816 11,816 11,816 11,816 11,816 11,816
11,476,17
Total 15,281,711 14,520,604 13,759,497 12,998,390 12,237,282 5
15,431,37
Grand Total Cost 19,308,911 18,547,804 17,786,697 17,025,590 16,264,482 5
Income before 27,768,62
tax 23,891,089 24,652,196 25,413,303 26,174,410 26,935,518 5
Tax 7,167,327 7,395,659 7,623,991 7,852,323 8,080,655 8,330,587
19,438,03
Income after Tax 16,723,762 17,256,537 17,789,312 18,322,087 18,854,862 7

III. Six years Cash Flow Statement

Project Years
Description 0 1 2 3 4 5 6
Cash Inflows

Owner's Equity 2,210,037

Net profit 16,723,762 17,256,537 17,789,312 18,322,087 18,854,862 19,438,037

Depreciation 11,816 11,816 11,816 11,816 11,816 11,816

42
Total Cash Inflows 2,210,037 16,735,578 17,268,353 17,801,128 18,333,903 18,866,678 19,449,853

Cash out Flows

Fixed assets 59,080

Working Capital 2,150,957

Lease payment

Dividend (10% of
Nnet income)

Total cash Outflows 2,210,037 - - - - - -

17,801,12 18,866,67 19,449,8

Net cash Flows - 16,735,578 17,268,353 8 18,333,903 8 53

Cumulative cash
balance 16,735,578 34,003,931 51,805,059 70,138,962 89,005,640 108,455,493

IV. Discounted Six years Balance Sheet Projection

Description Period
A. Assets
Initial
current assets investment Year - 1 Year - 2 Year - 3 Year - 4 Year - 5 Year - 6

Cash 2,150,957 14,552,676 25,711,857 34,062,667 40,102,179 44,251,534 46,888,303

Inventory - 1,146,435 996,900 866,869 753,799 655,478 569,981

Total C. Assets 2,150,957 15,699,111 26,708,757 34,929,537 40,855,979 44,907,011 47,458,283

Fixed assets - - - - - - -
Furniture & ICT
equipment 59,080 51,373 44,672 38,845 33,779 29,373 25,541
Accumulated
Depreciation - (10,275) (17,869) (23,307) (27,023) (29,373) (25,541)

43
Total Fixed Assets 59,080 41,098 26,803 15,538 6,756 - -

Total Assets 2,210,037 15,740,210 26,735,560 34,945,075 40,862,734 44,907,011 47,458,283

B. LIABILITY - - - - - - -

Other Payable - 385,391 335,123 291,411 253,401 220,349 196,716

Total Liability - 385,391 335,123 291,411 253,401 220,349 196,716

C. CAPITAL - - - - - - -

Equity contribution 2,210,037 812,417 706,449 614,304 534,177 464,502 403,915

Retained earning - 14,542,402 25,693,988 34,039,360 40,075,156 44,222,161 46,857,653

Total Capital 2,210,037 15,354,818 26,400,437 34,653,664 40,609,333 44,686,663 47,261,568

Total Liab. & Capital 2,210,037 15,740,210 26,735,560 34,945,075 40,862,734 44,907,011 47,458,283

V. Discounted Six years Income Statement Projection

Description Year-1 Year-2 Year-3 Year-4 Year-5 Year-6

Revenue 37,565,217 32,665,406 28,404,701 24,699,740 21,478,035 18,676,552
Costs - - - - - -
Raw Mtls - - - - - -
Casing 1,721,739 1,497,164 1,301,882 1,132,071 984,410 856,009
screening 375,652 326,654 284,047 246,997 214,780 186,766
Gravel 104,348 90,737 78,902 68,610 59,661 51,879
cement 125,217 108,885 94,682 82,332 71,593 62,255
Bentonite 43,826 38,110 33,139 28,816 25,058 21,789
Water Pump 104,348 90,737 78,902 68,610 59,661 51,879
Electrode 104,348 90,737 78,902 68,610 59,661 20,752
Total 2,579,478 2,243,025 1,950,456 1,696,049 1,474,825 1,251,329

44
 Utility - - - - - -
Fuel 891,130 774,896 673,823 585,933 509,507 443,049
Lubricant 31,304 27,221 23,671 20,583 17,898 15,564
Total 922,435 802,117 697,493 606,516 527,405 458,613
Rent cost - - - - - -
Office 104,348 90,737 78,902 68,610 59,661 51,879
Machine Rent 9,238,077 7,457,604 5,984,432 4,768,689 3,768,281 2,947,718
Salary 743,478 646,503 562,176 488,849 425,086 369,640
Perdium 234,783 204,159 177,529 154,373 134,238 116,728
Maintenance 260,870 226,843 197,255 171,526 149,153 129,698
Replacement 1,513,043 1,315,690 1,144,078 994,851 865,088 752,250
Insurance 661,832 575,506 500,440 435,166 378,405 329,048
Miscellaneous 521,739 453,686 394,510 343,052 298,306 259,397
Depreciation 10,275 8,935 7,769 6,756 5,875 5,108
Total 13,288,445 10,979,663 9,047,092 7,431,871 6,084,092 4,961,467
Grand Total Cost 16,790,358 14,024,805 11,695,042 9,734,436 8,086,322 6,671,409
Income before
tax 20,774,860 18,640,602 16,709,659 14,965,304 13,391,713 12,005,143
Tax 6,232,458 5,592,181 5,012,898 4,489,591 4,017,514 3,601,543
Income after Tax 14,542,402 13,048,421 11,696,762 10,475,713 9,374,199 8,403,600

VI. Discounted Six years Cash Flow Statement

Project Years
Description 0 1 2 3 4 5 6
Cash Inflows

Owner's Equity 2,210,037 - - - - - -

10,475,71
Net profit - 14,542,402 13,048,421 11,696,762 3 9,374,199 8,403,600

Depreciation - 10,275 8,934 7,769 6,756 5,875 5,108

10,482,46
Total Cash Inflows 2,210,037 14,552,676 13,057,356 11,704,531 9 9,380,073 8,408,708

Cash out Flows - - - - - - -

Fixed assets 59,080 - - - - - -

45
Working Capital 2,150,957 - - - - - -

Lease payment - - - - - - -
Dividend (10% of
Nnet income) - - - - - - -

Total cash Outflows 2,210,037 - - - - - -

10,482,46
Net cash Flows - 14,552,676 13,057,356 11,704,531 9 9,380,073 8,408,708
Cumulative cash 49,797,03
balance - 14,552,676 27,610,032 39,314,563 1 59,177,105 67,585,813

VII. 6 years profit projection Sensitivity test (increase 5% cost & decreasing 5% price)

Description Year-1 Year-2 Year-3 Year-4 Year-5 Year-6

Revenue 41,040,000 41,040,000 41,040,000 41,040,000 41,040,000 41,040,000
Costs
Raw Material
Casing 2,079,000 2,079,000 2,079,000 2,079,000 2,079,000 2,079,000
screening 453,600 453,600 453,600 453,600 453,600 453,600
Gravel 126,000 126,000 126,000 126,000 126,000 126,000
cement 151,200 151,200 151,200 151,200 151,200 151,200
Bentonite 52,920 52,920 52,920 52,920 52,920 52,920
Water Pump 126,000 126,000 126,000 126,000 126,000 126,000
Electrode 126,000 126,000 126,000 126,000 126,000 50,400
Total 3,114,720 3,114,720 3,114,720 3,114,720 3,114,720 3,039,120
Utility - - - - - -

46
Fuel 1,076,040 1,076,040 1,076,040 1,076,040 1,076,040 1,076,040
Lubricant 37,800 37,800 37,800 37,800 37,800 37,800
Total 1,113,840 1,113,840 1,113,840 1,113,840 1,113,840 1,113,840
Rent cost - - - - - -
Office 126,000 126,000 126,000 126,000 126,000 126,000
Machine Rent 11,154,977 10,355,815 9,556,652 8,757,490 7,958,327 7,159,165
Salary 897,750 897,750 897,750 897,750 897,750 897,750
Perdium 283,500 283,500 283,500 283,500 283,500 283,500
Maintenance 315,000 315,000 315,000 315,000 315,000 315,000
Replacement 1,827,000 1,827,000 1,827,000 1,827,000 1,827,000 1,827,000
Insurance 799,163 799,163 799,163 799,163 799,163 799,163
Miscellaneous 630,000 630,000 630,000 630,000 630,000 630,000
Depreciation 12,407 12,407 12,407 12,407 12,407 12,407
Total 16,045,797 15,246,634 14,447,472 13,648,309 12,849,147 12,049,984
Grand Total Cost 20,274,357 19,475,194 18,676,032 17,876,869 17,077,707 16,202,944
Income before
tax 20,765,643 21,564,806 22,363,968 23,163,131 23,962,293 24,837,056
Tax 6,229,693 6,469,442 6,709,191 6,948,939 7,188,688 7,451,117
Income after Tax 14,535,950 15,095,364 15,654,778 16,214,192 16,773,605 17,385,939

VIII. Lease Repayment Schedule

Repayment Lease Rent Rent Lease

Period Value Principal Service Total Rent Outstanding
38,055,36
Year -1 Quarter-1 0 1,585,640 594,615 2,180,255 36,469,720
Year -1 Quarter-2 1,585,640 594,615 2,180,255 34,884,080
Year -1 Quarter-3 1,585,640 594,615 2,180,255 33,298,440
Year -1 Quarter-4 1,585,640 594,615 2,180,255 31,712,800
Year -2 Quarter-1 1,585,640 594,615 2,180,255 30,127,160
Year -2 Quarter-2 1,585,640 594,615 2,180,255 28,541,520
Year -2 Quarter-3 1,585,640 594,615 2,180,255 26,955,880
Year -2 Quarter-4 1,585,640 594,615 2,180,255 25,370,240
Year -3 Quarter-1 1,585,640 594,615 2,180,255 23,784,600
Year -3 Quarter-2 1,585,640 594,615 2,180,255 22,198,960
Year -3 Quarter-3 1,585,640 594,615 2,180,255 20,613,320
Year -3 Quarter-4 1,585,640 594,615 2,180,255 19,027,680

47
Year -4 Quarter-1 1,585,640 594,615 2,180,255 17,442,040
Year -4 Quarter-2 1,585,640 594,615 2,180,255 15,856,400
Year -4 Quarter-3 1,585,640 594,615 2,180,255 14,270,760
Year -4 Quarter-4 1,585,640 594,615 2,180,255 12,685,120
Year -5 Quarter-1 1,585,640 594,615 2,180,255 11,099,480
Year -5 Quarter-2 1,585,640 594,615 2,180,255 9,513,840
Year -5 Quarter-3 1,585,640 594,615 2,180,255 7,928,200
Year -5 Quarter-4 1,585,640 594,615 2,180,255 6,342,560
Year -6 Quarter-1 1,585,640 594,615 2,180,255 4,756,920
Year -6 Quarter-2 1,585,640 594,615 2,180,255 3,171,280
Year -6 Quarter-3 1,585,640 594,615 2,180,255 1,585,640

Year -6 Quarter-4 1,585,640 594,615 2,180,255 -

38,055,36 52,326,12
Total 0 38,055,360 14,270,760 0

48