BUSINESS PLAN

FOR THE ESTABLISHMENT OF

A CEMENT PLANT IN SOUTH WESTERN

UGANDA.

Presented
By
Charlotte Kamugisha
Managing Director,
Bunyonyi Safaris Ltd
Kampala
Uganda

Updated January 2001

Address
P. O. Box 26905 Kampala Uganda East Africa
Tel: 256-41-347460
Fax: 256-41-345605
Kamugi@imul.com
TABLE OF CONTENTS

1.0 PROJECT BACKGROUND .................................................................................... 3

1.1 Project Summary ................................................................................................. 3
1.2 The Market Environment ..................................................................................... 3
1.3 The Demand for Cement ..................................................................................... 3
1.4 Current Cement Production in Uganda and the Region. ..................................... 4
2.0 THE PROJECT....................................................................................................... 5
2.1 The Project Concept ............................................................................................ 5
2.2 Power Generation................................................................................................ 5
2.3 Organizational Structure ...................................................................................... 5
2.4 Project Cost and Financing.................................................................................. 5
2.5 Project Cost ......................................................................................................... 6
3. 0 FINANCIAL VIABILITY ........................................................................................... 7
3.1 Base Assumptions ............................................................................................... 7
3.2 Financial Projections............................................................................................ 8
4.0 ENVIRONMENTAL CONCERNS ........................................................................... 8
4.1 Air Pollution.......................................................................................................... 8
4.2 Noise Pollution..................................................................................................... 8
5.0 BENEFITS OF THE PROJECT. ............................................................................. 9
5.1 Special Environmental Conservation and Poverty Eradication Program............. 9
APPENDIX 1: CHEMICAL RESULTS OF KAKU RIVER LIMESTONE .......................... 10
REFERENCES ............................................................................................................... 11

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1.0 PROJECT BACKGROUND

1.1 Project Summary

Bunyonyi Safaris Ltd seeks to develop a cement plant of capacity 300 tons per day in Kisoro,
South Western Uganda, close to the borders of Rwanda and Democratic republic of Congo.
The company is currently upgrading the limestone kiln that has been producing lime. Lime is
widely used in road and building construction in Uganda. The cost of the project is USD$
10,855,900. The company shareholders will contribute USD$ 1,076,900 and are seeking
financing of USD$9,702,000 in cash or equipment to invest in the project. The name of the
project will be Kaku Cement Works.

1.2 The Market Environment

The construction industry in Uganda is growing at rapid rate of 15 to 20% per annum. This is in
response to the rapid economic growth of about 7% per annum and a population growth rate of
about 2.8%. The demand for cement is therefore in the range of 15% to 20% in line with the
growth of construction.

In Uganda there are two cement plants, mainly operating below capacity. They produce for the
domestic and export market in the neighboring countries of Rwanda, Burundi and Eastern
Democratic republic of Congo, which lack cement plants. This has contributed to the high cost
of cement in the region. Much of the cement in Uganda is also imported from Kenya and
Tanzania. Cement is sold at ex-factory price of about USD 210 per ton.

1.3 The Demand for Cement

From 1987 to 1995, the demand for cement stood at about 15%. In 1995 the demand tripled.
This was due to the fact that Uganda was recovering from an insecure past where development
was more or less at a stand still. In 1995 actual demand was calculated at 269,342tons per year
by UNIDO and potential demand was estimated at 700,000 tons per year. Only about 200,000
tons were produced locally. Today, with only 8% of the population living in permanent
structures, there is still immense potential for the development of infrastructure and housing.
Therefore, the demand for cement will remain high for may more years to come. The reason
why the consumption rate of cement has been low in the region is because the respective
countries:
1. Do not produce enough cement
2. Do not have enough foreign exchange to import
3. Are land locked and unable to import sufficient quantities cheaply.

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4. Have had political problems that have led to low economic growth and hence less cement
consumption. This last problem is gradually being overcome and the countries and
populations are faced with a great challenge to develop infrastructure as well as decent
housing.
A summary of the cement consumption trends as analyzed by a UNIDO sponsored study in
1997 is as below:
Table 1: Cement Consumption Trends
Year Production (tons) Imports (tons) Total Growth in
Consumption Consumption
(tons) 1987-00
1987 15,908 71,275 87,183 100.00
1988 14,703 111,757 126,460 145.05
1989 17,378 130,685 148,033 169.80
1990 26,920 61,495 88,417 101.14
1991 27,130 102,659 129,797 148.87
1992 37,881 135,879 173,760 199.30
1993 52,011 116,124 168,135 192.85
1994 45,558 212,886 246,444 282.67
1995 45,558 201,490 269,342 308.94
Ref: UNIDO 1997
N.B. 15,680 tons (actual) were imported from Hima cement factory to D.R. Congo.

1.4 Current Cement Production in Uganda and the Region.

The cement industry in Uganda is currently based on limestone deposits at Tororo carbonitite in
Eastern Uganda and lake limestone at Hima in western Uganda. These deposits are limited
and not as much as once thought. In 1997, the production capacity of the two plants was
calculated at 450,000 tons per annum. The two plants were producing largely below capacity
and much of the cement was being imported. Between 1996 and 2000, it was estimated that
Uganda would spend about US$ 40,000,000 on importation of cement from Kenya and
Tanzania. A 1997 UNIDO study therefore recommended that Uganda needs to establish a new
cement plant of 300,000 tons per annum to meet the high demand and to export to Rwanda,
Burundi and Eastern Congo that have no cement plants. Already Hima cement plant exports
15% of its production to these neighbors. Noteworthy is also the fact that the cement demand in
Kenya is increasing at a high rate despite the establishment of Bamburi Pozzolana Cement
plant. In 1996 there was no surplus production of cement in the Kenyan market (UNIDO 1997).

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2.0 THE PROJECT

2.1 The Project Concept

The aim of the project is to move from the current lime production to cement production. This
will be done by using a medium size cement plant of capacity 300 tons per day. The main raw
material will be limestone mined from Kaku limestone deposits and from the surrounding area.
The company will mine form their deposits at Kaku as well as use the local community to supply
the raw material from other deposits. Studies have been done to confirm the good quality of the
limestone for cement production. Other raw materials such as gypsum are available in the
region.

2.2 Power Generation

The project will harness power from the nearby river Kaku. The waterfalls are less than 500m
away from the production site. A mini hydroelectric plant of about 5 to 10-mega watts
production capacity will be used. The initial cost of installing the hydroelectric plant will be offset
in due course, as we will not need to purchase electric power in future.

2.3 Organizational Structure

Two of the Directors of Bunyonyi Safaris Ltd will be involved in the management of the
operations. The company will also hire experts to handle production, maintenance and
marketing. The expertise is available in the country and in neighboring Kenya. So far, some of
these experts have been involved in designing the kiln and in testing the lime samples.

2.4 Project Cost and Financing

The project will cost an estimated USD 10,855,900. The shareholders contribution will amount
to USD$ 1,076,900 (10%), while USD$ 9,702,000 is being sought.
The shareholders will undertake:
• The development of all necessary infrastructure and
• Meet all necessary pre operational expenses to prepare the site.

The company therefore seeks to acquire the technology and financing to:
• To produce the cement,
• To harness hydro electric power and also needs the
• To purchase vehicles and to distribute the cement.

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2.5 Project Cost
The project cost is summarized as below:
Table 3: Capital expenditure details
PROJECT ITEM SHAREHOLDERS FINANCING TOTAL
EQUITY REQUIRED
A Land 0
40 acres in Busanza 200,000
Total 200,000 0 200,000
B Buildings & infrastructure 0
B1 Stores, warehouse, offices etc 500,000
B2 Vertical kiln 2.5m internal diameter 100,000
600,000 600,000
C Machinery, Equipment, facilities 0
C1 Cement plant 300tpd CIF Kisoro 6,000,000
C2 Hydro electric plant 5-15MW, CIF Kisoro 1,200,000
C3 6 Compressors and 18 jack hammers 300,000
C4 Solar electric system for lighting 10,000
C5 Water pump 10,000
0 7,520,000 7,520,000
D Office equipment
D1 Furniture, fixtures, fittings, computers 20,000 0
D2 Communication equipment 5,000 0
25,000 0 25,000
E Vehicles 0
E1 Four 50 ton trucks, 2 saloon car 1,200,000 1,200,000
F Pre operating costs
F1 Site preparation 25,000
F2 Mining lease & Environmental impact 20,000
assessment
F3 Design and engineering 30,000

Total 45,000 30,000 115,000

G Working expenses
G1 Marketing 25,000
G2 Skilled labor 25,000
G3 Unskilled labor 109,000 0
G4 Reproduction capital 50,000
Research and development 10,000
Packaging material 10,000
Raw materials other then limestone 20,000
109,000 140,000 209,000
Total 979,000 8,820,000 9,869,000
H Insurance/contingency (10%) 97,900 882,000 986,900
Total 1,076,900 9,702,000 10,855,900

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3.0 FINANCIAL VIABILITY
The total initial investment in the project including working capital requirements is expected to
be approximately USD$ 10,855,900. In order to assess the project financial viability, 6-year
profit and loss cash projections have been developed. The 6-year projections not only enable
assessment of adequacy of cash flows to cover loan repayments but also allow for a going
concern assessment of the project.

3.1 Base Assumptions

Table 4: Base Case Assumptions
BASE ASSUMPTIONS FOR THE FINANCIAL PROJECTIONS
Currency All financial projections are in USD
Inflation The effects of inflation are ignored. All financial projections are in real terms.
Base Year The year 2002 is used as the base year, with financial year running from 1st
January to 31st December. Financial projections are based on project
performance.
Production The 1st year will be used for construction and establishment of machinery.
Production will begin in the second year. The number of working days in a
year is calculated as 240.
The production capacity of the plant is 300 tons per day. Our financial
projections assume that we produce and sell only 150 tons per day at USD$
100 per ton hence earning 150 x 240 x 100 = $3,600,000 per annum.
Costs All equipment costs are estimated at CIF Kisoro and include taxes.
Sales price The sales price of USD 5 per 50kg bag exclusive of vat is assumed. This is
equivalent to $100 per ton. Current market price is USD $210 per ton.
Depreciation Calculation is on a straight-line basis. Depreciation rates are based on
replacement of assets and are expected after 3 years of operation. The
depreciation of vehicles is incorporated after 4 years of operation, as these
will be purchased gradually.
Contingencies Capital expenditures are based on quotations from suppliers but a cost
contingency is applied in order to accommodate any changes in terms of
equipment supply. This also includes insurance costs. It has been estimated
at 10% of the total project cost. The contingency for working expenses is
calculated separately for the subsequent years.
Loans A grace period of 1 year is assumed. The loan will be paid back after 5 years
of operation or 6 years from commencement of the project.

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3.2 Financial Projections
Table 5: Financial projections.
1st year 2nd year 3rd year 4th year 5th year 6th year
RECEIPTS
Loan 9,702,000 0
Shareholders 1,076,900 0
equity
Cash sales 0 3,600,000 3,600,000 3,600,000 3,600,000 3,600,000
Profit/loss carried 0 1,175,100 629,000 655,100 555,200 645,300
fwd
Total Receipts 10,855,900 4,775,100 4,229,000 4,255,100 4,155,200 4,245,300
PAYMENTS
Pre-operational 9,406,900 1,200,000 0 0 0
expenses
Operational 249,000 249,000 249,000 249,000 249,000 249,000
expenses
Contingency 10% 24,900 24,900 24,900 24,900 24,900 24,900
Depreciation (5%) 0 0 0 376,000 436,000 436,000
Loan repayment 0 1,702,000 2,500,000 2,500,000 2,500,000 500,000
Bank interest 0 970,200 800,000 550,000 300,000 0
(10%)
Total payments 9,680,800 4,146,100 3,573,900 3,699,900 3,509,900 1,209,900
Total receipts 10,855,900 4,775,100 4,229,000 4,255,100 4,155,200 4,245,300
Profit/loss 1,175,100 629,000 655,100 555,200 645,300 3,035,400

4.0 ENVIRONMENTAL CONCERNS

There are two kinds of pollution caused by cement plants.
1. Air pollution, smoke and dust and
2. Noise and vibration.

4.1 Air Pollution

The air pollution problem will be solved by installation of dust collection equipment. This also
has an advantage in that it improves the kiln. Electrostatic precipitators will be installed to
reduce emission to lower than the target control value e.g. not more than 150mg/m. Limestone
bag filters will also be used to eliminate excessive dust emission from the crushers.

To reduce the emission of sulfur dioxide into the atmosphere, a kiln with a pre-calciminer to
increase the rate of desulferisation will be used.

4.2 Noise Pollution

The noise and vibration will not be a big problem because the limestone reserves are mostly
near the surface. There will be no blasting of the limestone.

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5.0 BENEFITS OF THE PROJECT.
The project will be of benefit to the country and the region by:
• Providing cement for construction at relatively cheaper prices and hence saving the country
foreign exchange.
• Paying taxes.
• Providing employment hence improving standards of living of the population
• Reducing the impact of population growth on land resources and hence decreasing
environmental degradation. (By providing alternative employment, the project will take
pressure off the land resource hence reducing environmental degradation).

5.1 Special Environmental Conservation and Poverty Eradication Program

The project will make an effort to contribute towards poverty eradication and environmental
conservation in its surroundings. This is very important because of the following reasons:
• Kaku Cement works is located in a very densely populated area, where the majority of
people depend on subsistence rain-fed agriculture.
• The surrounding area is also home to some of the most important rain forests in the world
with unique and rare flora and fauna. One famous example is the endangered mountain
gorilla. There are also spectacular crater lakes and volcanoes. These unique resources
must be protected from the rapidly expanding land based population.
• The project promoters have noted, with concern, the acute shortage of agricultural land and
fuelwood. Though the forests have been gazetted, the surrounding population has been
given no alternatives to meet their needs for fuel, medicines and land for food production.

It is for the above reasons that Kaku Cement works is committed to contribute 1% of all profits
earned after the loan is fully paid back to the promotion of modern and intensive agriculture and
forestry. A program has already been developed for this purpose. In brief it will set into motion
a cycle distribution of improved seeds, tree seedlings and domestic animals from farmer to
farmer. It will also provide agricultural and forestry advisory services. This will be done by
providing the above materials for free to a few selected farmers who will then be required to
pass on some units of their 1st harvest to another farmer for free. This will create a cycle and
once set in motion the program is expected to expand and grow hence benefiting many poor
households that would otherwise have not afforded the services. The program will also be
sustainable once set in motion.

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APPENDIX 1: CHEMICAL RESULTS OF KAKU RIVER LIMESTONE

KAKU RIVER LIMESTONE

1 LO1 44.00
2 SiO2 0.50
3 R2O3 1.10
4 AL2O3 0.60
5 FE2O3 0.50
6 P2O5 Nil
7 CaO 52.40
8 MgO 1.02
9 SiO3 0.40
10 TC 97.30
11 MgCO3 2.29

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REFERENCES

DEPARTMENT OF GEOLOGICAL SURVEY AND MINES, MINERAL DRESSING

LABARATORY 1992: Final Report to International Development Research Center of Canada.
Department of Geology. Kampala Uganda.

UNIDO 1997: Preliminary Assessment for the Feasibility of Establishing a New Small/Medium
Cement Plant Based on the Evaluation of the Availability of Sufficient Reserves of Raw
Materials in the Eastern and/or Western Regions of Uganda. Uganda Investment Authority
Kampala.

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