St.

Mary’s University School of Graduate Studies

Project Management 2010 A
Addis Ababa

Course Title: MAPMC-611

Title: - PROJECT PROPOSAL ON EDIBLE OIL

PROCESING COMPANY

PREPARED BY: Group Two Members:

1. Elias Afework,
2. Ermias Alemayehu,
3. Fasika Shiferaw,
4. Fasil Mekonnen,
5. Fromsa Taye,
6. Getu Tefera

SUBMITED TO: Habtamu Abebaw

January 8, 2018

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Project Proposal Outline Page No.
CHAPTER ONE – EXECUTIVE SUMMARY………………………………………………..3
1.1. Background of the project …………………………………………………………..3
1.2. Project Site…………………………………………………………………………..4
1.3. Project management and implementation…………………………………………...5
1.4. Project prospect……………………………………………………………………...5
1.5. Project Challenges and strategies……………………………………………………5
CHAPTER TWO: BACKGROUND AND DEVELOPMENT OF PROJECT ………....….....6
2.1. Background of the project………………………………………………………….6
2.2. Project development (Rationale)………………………………………………...…6
2.3. Investment Motivation…………………………………………………………......7
CHAPTER THREE: MARKET AND DEMAND ANALYSIS……………………………....7
3.1.Market Investigation…………………………………………………………….…..7
3.1.1. Product description………………………………………………………..…...7
3.1.2. Main customers……………………………………………………..………..8
3.2. Market Prediction (Demand and Supply forecast……………………………..……8
3.2.1. Demand estimation…………………………………………….………….…..8
3.2.2. Supply estimation………………………………………………………..……9
3.3.Marketing elements………………………………………………………….….…..9
3.4. Marketing plan…………………………………………………………………...…9
CHAPTER FOUR: CONSTRUCTION SITE SELECTION…………………………….….11
CHAPTER FIVE: TECHNICAL ANALYSIS……………………………………………....11
5.1. Production Process…………………………………………………………….….12
5.2.Material inputs……………………………………………………………………..16
CHAPTER 6: ENVIRONMENTAL ANALYSIS…………………………………………...17
6.1. Environmental protection and safety………………………………………………17
6.2. Social Benefits of the project………………………………………………………18
CHAPTER SEVEN: INSTITUTIONAL ANALYSIS……………………………………….19
7.1. Man power requirement……………………………………………………………20
7.2. Organizational Structure…………………………………………………………...21
7.3. Structure and Civil work
CHAPTER EIGHT: PROJECT IMPLEMENTATION………………………………………22
8.1.Project implementation activity …………………………………………………….22
8.2.Project implementation schedule……………………………………………………22
CHAPTER 9: INVESTMENT OUTLAY ESTIMATION AND FUND ALLOCATION……23
9.1. Investment requirement……………………………………………………………..23
9.2. Sources of Project Financing………………………………………………………..23
CHAPTER TEN: FINANCIAL ANALYSIS AND SENSITIVITY ANALYSIS…………….24
10.1. Financial Analysis of the project………………………………………………...24
10.1.1. Estimation total Sales
10.1.2. Production plan and Revenue projection
10.1.2.1. Profit/loss statement
10.1.2.2. Cash flow statement
10.1.2.3. `1Balance sheet
10.2. Investment Selection Criterions
CHAPTER ELEVEN: CONCLUSIONS AND SUGGESTIONS …………………………….27
Conclusions and suggestions……………………………………………….…………..27
References
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CHAPTER ONE –EXECUTIVE SUMMARY
Agriculture now is at the center of Ethiopia`s growth yet way forward is planned by the
government that gradually the economy is to be led by the industry in the long run. Yet there is
still a big development potential in the agriculture sector and much is expected that the sector will
remain leading for the next year. Growth is in the agriculture sector by and large has stimulated
the agro industry sub- sector since most of the people in rural and urban area are striving for a
better living and working condition which brought about growth in the consumption of processed
food items such as refined edible oil. Edible oil is an essential element for day to day consumption
in almost all forms of daily meal both in the rural and urban area. Currently the majority of refined
edible oil products are imported while a few proportion are being supplied by local producers, yet
the demand has not yet fully satisfied.

Ethiopia has a huge potential for scaling up its production of edible oil; favorable agro-climatic
condition for increased oilseed cultivation, the labor-incentive nature of the sub-sector, a
conductive business environment and the huge local demand. Despite this potential, however, the
edible oil processing industry remains underdeveloped. Main constraints are: low production, poor
quality of seeds, inadequate trading infrastructure, poor agro- processing facilities and week
business development services on the part of edible oil processors.

On the other hand good performance of the economy brings a huge demand for quality product.
The country’s economy has been experiencing a consistence growth of about 10.8% for the last 8
years. It is believed that this achievement the change is the nation’s work culture and other factor.

The oil processing company taken the initiative to engage in the production of refined oil after
carful observation and survey of the market trends. The assessment made in this study also shows
that there exists and increasing and unsatisfied demand for edible oil.

According to financial analysis made, the envisage project will be profitable and viable.

1.1.Background of the project

In Ethiopia edible oil has been in its lowest mode of production for a number of years. Most in the
small-scale oil mill sector were supplying the market with oil in crudest form, with the oil seeds
crushed by mill and filtered through a thin cloth, locally Shemma. Their product hardly underwent
any kind of refining process. After issuance of the proclamation which compels industry operator
processing other oilseeds to go through an industrial refining process, this supply has been banned
and those small scale industries supply crude oil to refineries. Currently there are about 40 refining
and semi refineries known to operate in a medium and large scale oil mill firms in the country.
This feasibility study aims at showing the business plan of new Niger and cotton Oil Company
and to establish a large scale edible oil refinery in Oromia Regional state, East Shoa Zone, Mojo
town. It is well aware that there exists a huge demand for edible oil in the country as a whole and
wishes to participate in sector and play to active role in satisfying this demand by establishing a
modern and competitive production firm.

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On the other hand good performance of the economy brings a huge demand for quality product.
Edible oil is an essential element for day to day consumption in almost all forms of daily meal
both in the rural and urban area. Currently the majority of refined edible oil products are while a
few proportion are being supplied by local producers, yet the demand has not yet fully satisfied.
The oil processing company taken the initiative to engage in the production of refined oil after
carful observation and survey of the market trends. The assessment made in this study also shows
that there exists and increasing and unsatisfied demand for edible oil.

1.2.Project Site
There is a huge demand for edible oil in the country as a whole and wishes to participate in sector
and play to active role in satisfying this demand by establishing a modern and competitive
production firm. The Niger and cotton Oil Company will establish a large scale edible oil refinery
in Oromia Regional state. Mojo (also transliterated as Modjo) is a town in central Ethiopia named
after the nearby Mojo River. Mojo is located in Oromia National Regional State, East Shewa Zone
at a distance of 70 km from Addis Ababa, and 25 Km from Adama. Its astronomical location is
08º 35’ North Latitude and 39º 07’East Longitude and the city was founded in 1925.Mojo is one
of the reform towns in the region and has a city administration, municipality and two Kebelles.
The town has a structure plan which was prepared in 2009.The head office of the company will be
in Adama where it runs and manages its business. There is also a liaison office in Addis Ababa to
facilitates export, undertake trade negotiation with the buyers and suppliers of export items.

1.3.Project prospect
According to financial analysis made, the envisage project will be profitable and viable and it will
generate profit beginning from the first year of the operation. Moreover, the project is expected to
generate an average of net profit of Birr 9.1 million during the project period of ten years. It is
anticipated that the project will have positive net cash flow in the projection period. Furthermore,
it will generate a positive NPV while the FIRR will be expected to exceed the prevalence lending
rate by registering 26% and 23% before and after tax which indicates that the oil mill project will
be a successful venture.

In addition to this, the proposed project possesses wide range of economic and social benefits such as
increasing the level of investment, tax revenue, employment creation and import substitution.

1.4.Project Management and Implementation

The oil production company planned to installed a state of the art machinery that perform cleaning
sorting grinding and bagging raw oil seeds and spices before being exported.
The company plan to endow with a team of professionals and competent management with solid
experience in the field of oil and seed export. The company`s policy is to command high reputation
from its clients by rendering fast, compressive and most efficient service.

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The company decided to establish edible oil processing plant after observing the ever growing
demand for the product particularly in the domestic market. This project will established in Adama
town on a total area of 4000m2 leased from the regional government.
The new oil processing plant will have a capacity to process 20 tons of two kinds of oil seeds
including Niger seed and cotton seed. The technology selected offers greater opportunity to
produce edible oils from any of the given oil seeds variety based on the prevailing market situation.
Taking in to account the current market demand, raw materials availability and future prospects,
the subject is planned to produce edible oil of niger seed and cotton seed at a product mix ratio
of 35% and 65% respectively. The larger production proportion of edible oil due availability of
the raw materials in the market in abundance.
The project under consideration upon going operational, generate income mainly from business
activities; sales of refined edible oil and by product (oil cake). The oil is sold to the general public
for cooking food whereas the oil cake will be sold to commercial livestock farms such as dairy,
poultry, and fattening farms.

1.2.Project challenge and strategies

Ethiopia has a huge potential for scaling up its production of edible oil; favorable agro-climatic
condition for increased oilseed cultivation, the labor-incentive nature of the sub- sector, a
conductive business environment and the huge local demand. Despite this potential, however the
edible oil processing industry remains underdeveloped. Main constraints are: low production, poor
quality of seeds, inadequate trading infrastructure, poor agro- processing facilities and week
business development services on the part of edible oil processors.
On the other hand good performance of the economy brings a huge demand for quality product.
Edible oil is an essential element for day to day consumption in almost all forms of daily meal
both in the rural and urban area. Currently the majority of refined edible oil products are while a
few proportion are being supplied by local producers, yet the demand has not yet fully satisfied.
The oil processing company taken the initiative to engage in the production of refined oil after
carful observation and survey of the market trends. The assessment made in this study also shows
that there exists and increasing and unsatisfied demand for edible oil.

The proposed project possesses socio-economic befits such as increasing the level of investment, tax
revenue, employment creation and import substitution. Generally’ the project is technically feasible,
financially and commercially viable as well as socially and economically acceptable. Hence the project is
worth implementing.

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CHAPTER TWO- BACKGROUND AND DEVELOPMENT OF
THE PROJECT
The project proposal are planned to establish and owned by six Ethiopian national investors. The
investors include MR. Getu, Mr. Elias, Mr. Ermias, Mr. Fasil and Mr. Fromsa, Ms. Fasika, where
the first four have equity share of 15% each while the last two investors have equity share of 20%
each. Its current paid up capital is birr 10 million. `The head office of the company is found in
Adama where it runs and manages its business. There is also a liaison office in Addis Ababa to
facilitate export, undertake trade negotiation with the buyers and suppliers of export items.

The company is established to engage in various business activities, focusing mainly on export.
The project plan to hire more than 90 employees and 35 permanent qualified skilled and well
experienced staffs in the field of export of oil seeds. Presently it has installed a state of the art
machinery that perform cleaning sorting grinding and bagging raw oil seeds and spices before
being exported.

2.1. Project Development rationale

The company decided to establish edible oil processing plant after observing the ever growing
demand for the product particularly in the domestic market. This project will established in Mojo
town on a total area of 4000m2 leased from the regional government.

The new oil processing plant will have a capacity to process 20 tons of various kinds of oil seeds
including nigger seed and cotton seed. The technology selected offers greater opportunity to
produce edible oils from any of the given oil seeds variety based on the prevailing market situation.

Taking in to account the current market demand, raw materials availability and future prospects,
the subject is planned to produce edible oil of nigger seed and cotton seed at a product mix ratio
of 35% and 65% respectively. The larger production proportion of edible oil due availability of
the raw materials in the market in abundance.

In Ethiopia more than, 11 types of pulses and oilseeds with potentials to enable the country produce
affordable cooking oil in large quantities have been identified. In particular, Niger seed have been
selected as the most viable oilseed for this purpose. Plans to mass produce niger seed and supply
it to cooking oil factories will be activated shortly. The Ministry of Industry and The Ministry of
Agriculture are working in collaboration to link farmers with the raw materials and factories that
need the pulses and oilseeds. There are farmers who is producing oilseeds in Adama, therefore it
is easy to establish working relations with cooking oil producing factories in Mojo. Ethiopia
exports a large amount of oilseeds but imports cooking oil at a much expensive price tag. The
latest effort to produce cooking oil locally is aimed at resolving this irony.

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 2.4.Investment Motivation
The Ethiopian government aiming to achieving self-sufficient in edible oil by 2015. The recently
release growth and transportation plan underscore the importance of agro processing industry
which include the edible oil sector (MoFED 2010).
In terms of imported products, local manufacturers actually have an advantage over imports. As
previously mentioned, the Ethiopian Government is keen on reducing import bills and therefore
prioritizes and protects local manufacturers, with a target to increase their market share in tenders
from about 20% to 50% by 2020 and 60% by 2025. This will take the form of a significant growth
(30%-plus) of the tender market opened in priority to local manufacturers.
The project under consideration, upon going operational, will generate income mainly from
business activities; sales of refined edible oil and by product (oil cake). The oil is sold to the general
public for cooking food whereas the oil cake will be sold to commercial livestock farms such as
dairy, poultry, and fattening farms. Since the promoter has been successful in managing its
businesses, it is easier to start this new project and repeat success story.

The company is endowed with a team of professionals and competent management with solid
experience in the field of live animal export, oil and seed export. The company`s policy is to
command high reputation from its clients by rendering fast, compressive and most efficient
service.

According to the Ethiopia standard all edible oil must be refined, although a number pf specific
oil seed must be semi refining. Several efforts geared towards addressing the growing demand for
cooking oil with locally produced oil is well underway.

CHAPTER THEREE - MARKET AND DEMAND ANALYSIS

3.1. Market Investigation
3.1.1. Product description

Edible oil produced from Niger seed and cotton seed which are common in the edible oil market
will be the major product of the envisaged project. The oil and protein contents of the seeds vary
with the variety and agro climatic conditions. Some verities may have up to 25% oil content.

Refined oil is used mainly for food purposes such as salad and cooking oils, shortening, margarine
and to lesser extent in packing of fish and cured meat. Low grade oil is used in manufacturing of
soaps, lubricants and protective coating. The by-product of the proposed plant is expeller cake
which is used for animal feed.

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3.1.2. Main Customers

Government Institutions:- Such government institutions as police and defense forces are known
for their consumption of edible oil and similar products. Police and defense camps that are all over
the country large depend on the different training and working camps.

Individual Customers:- The demand for edible oil for individual consumer level is a function of
increase in population size. As the consumption from purchase of the items in the market is
discussed under the topic business establishments the individual consumption level is considered
in terms of household consumption.
Based on the information obtained from CSA abstract, there is more or less the same distribution
of consumption between rural and urban population, with an average consumption of 2.8kgs per
head per annum. Using annual population growth rate estimation of the CSA by making the 2007
as a base, the consumption of oil could be estimated. In addition, the average per capita
consumption of oil in Ethiopia which is at low level compared to most of African counties (8-
10.5kgs), is expected to increase slowly to at least the fellow African levels in the next few years
as induced by economic growth.

Business Establishments:- The demand can also be viewed from private investment projects
which make use of the product.

3.2. Market Prediction (Demand and Supply forecast)

3.2.1. Demand Estimation

In order to make a more valuable estimation, it is found appropriate to make use of per capital
consumption of oil which is common yardstick. The per capital consumption is a function of
population size so that population growth statistics shall be employed. According to population
census carried out in 2007, the total population was 73,750,932 and it is estimated to grow by at
least 2.7% per annum.

Table. 3.1. Total projected oil demand in tons

Year Population Size Demand(Tons)

2010 79,887,502 297,725

2011 82,044,465 336,340

2012 84,259,666 379,963

2013 86,534,677 390,222

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 2014 88,871,113 400,758

2015 91,270,633 411,578

2016 93,734,940 422,691

2017 96,265,783 434,104

2018 98,864,959 445,824

2019 101,534,313 457,862

2020 104,275,740 470,224

2021 107,091,185 482,920

2022 109,982,647 495,959

2023 112,952178 509,350

2024 116,001,887 523,102

3.2.2. Supply Estimation

The supply of Edible oil in Ethiopia comes from the domestic production and import, though
imports take the lion’s share of the supply. The main import sources of oil for Ethiopia are Asian
countries, especially Indonesia for palm oil.

3.3. Marketing elements

3.4. Marketing plan

The saleable items of the project are refined oil which is the principal product and oil cake which
comes out as a by-product residual product. To determine the selling prices, assessments was made
in the market of similar products. Accordingly, price trends showed that both imported and
domestically produced refined oil prices have been on the rise especially in the past couple of year
2015 and 2016. The prices are determined by not only the usual demand and supply interactions,
but also by the different in tastes. The local refined oil extracted from oil seeds is generally
accepted as being tastier than the imported palm oil. On the other hand, the majority of locals are
regarded less purified and obtain less acceptance while those bottled vegetable oil (imported)
products are such more expensive than local products.

9
The project will be initially supplying its products at a fair selling price as a strategy to attract
adequate market. But in the future, as the products penetrate the market, the promoter will seek to
optimize the production volume with its sales by applying more fair market prices.

The following summarizes prices used:

Table: 3.2 Product prices

Unit of Measure Price per unit product

Refined oil – Niger seed Litres 63

-Cotton Seed Litres 62

Oil cake – Niger seed Tons 5000

-Cotton seed Tons 4500

3.5 Price Assessment

The saleable items of the project are refined oil which is the principal product and oil cake which
come out as a byproduct residual product. To determining the selling prices, assessment was made
in the market of similar products. Accordingly, price trend shows that both imported and
domestically produced refined oil prices have been on the rise especially in the past couple of years
of 2013 and 2014. The prices are determined by not only the usual demand and supply interaction,
but also the difference in the testes. The local refined oil extracted from oil seeds is generally
accepted as being tastier than the imported palm oil. On the other hand, the majority of locals are
regarded less purified and obtain less acceptance while those bottled vegetable oil(imported)
products are much more expensive than local products.

This project will be initially supplying its products at a fair selling price as a strategy to attract
adequate market. But in the future, as the products penetrate the market, the promoter will seek to
optimize the production volume wits sale by applying more fair market prices.
The following summarize price s used:
Table :3.7 Product prices
Room type Unite of measurement Price /unit product
Refined oil-Niger seed Liters 63
Cotton seed 62
Oil cake –Niger seed Tons 5,000
Cotton seed Tons 4,500

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CHAPTER FOUR CONSTRUCTION SITE SELECTION
4.1 Project location

Location and site selection are the most significate among the various factors that generally act on
the economic and operability aspects of the plant. The primary factors determining location are
supply of raw material, demand and supply and availability of infrastructure. Other factors include
existence of transportation, labor and regulatory laws.

In view of the above considered one that is suitable and appropriate as it is situated in Mojjo town.
The area receives adequate infrastructural facilities in terms of power, road, water supply and other
basic necessary items.

CHAPTER FIVE TECHNICHAL ANALYSIS

5.1. Technology and engineering (Type and source of technology to be adopted)

The machinery planned for purchase and installation for the envisage project shall involve pressing
line, oil refining line, bottling and labeling line and bottle blowing line. The complete set of
machinery could be obtained from different sources including china, India and even Europe. The
promoter has come to terms to import a Chinese technology supplied by a manufacturer in china.
The planned supplier win tone machinery manufacture co.ltd.is a leading manufacturer of grain
and oil machinery which has a long time experience in the machinery manufacturer and supply.

Project scale:- The plant shall have three distinct and major production components of milling
and refinery:

 20 tons per day milling line

 8tpd refinery line
 Automatic bottle filling and packaging line
Product quality standards: - The technology to be adopted shall enable the project to produce
products that could fulfill the basic quality standards of sanitary and health. The neutralized,
bleached and deodorized oil leaving.

Workshop space

NO Main construction building Dimension Feature Remarks

1 Pretreatment oil pressing 20*6 m Steal structure

workshop

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 2 Refining workshop 20*8m Steel structure

3 Filling workshop 20*6m Depends on the

layout

4 Raw material 20*18m

5 Packed oil warehouse 20*12m

6 Oil cake warehouse 20*18m

5.2. Production process

Edible oil production in general is of two types in terms of the manner by which the production
stages or the manner the seeds undergo processing, which are crude and refined oil production.

In crude processing impurities are separated from seeds by vibratory screens, pneumatic cleaners
and magnets. The cleaned oil seeds are then conditioned in a cooker with steam. The cooked seed
is then pressed to crude oil which shall be screened and filtered before entering the refinery unit.

The production process of refinery unit involves mainly three steps: neutralization, bleaching and
deodorization. In the neutralizer, the free fatty acid(FFA) content of crude oil shall be lowered by
adding caustic soda. The color of oil will be adjusted in the bleacher with bleaching earth. Finally,
the constituents of oil which cause the odor are removed by the deodorization process. The final
refined oil is then packed in bottles then dispatched for sale.

Raw materials Vibro separation Soft rolling Solvent Grinding bran

feeding (stone, etc) Embryo (hot Extraction
finishing
cleaning)

Evaporation Crude oil Alkali Degumming Washing

Refining

Decolonizat Inspection
Deodorizati oil Storage
ion And canning
on
Diagram: 5 – 1 process flow of oil production

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The edible oil milling process in order to guarantee the above mentioned points, undergoes 3
important lines:

1. Pretreatment line
2. Oil refining line
 Refining pot
 Bleaching pot
 Deodorization pot
3. Packaging workshop
Brief introduction of the different basic lines

1. Pretreatment line
Big and small impurities are removed after process of magnetic separation and vibration sifter and
flaking machine for the pretreatment. Then go to steaming and frying section to damage the seed
cell, denaturalizing protein and condense the oil. The heating treatment adjusts temperature and
moisture of the material, beneficial for pressing. the crude oil goes to refinery after filtration. The
pressed cake goes to cake storage by conveyor.

Figure 5.2 Oil refining line

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The filtered crude oil is added with some salt after preheating to remove scrap. The degummed oil
is separated out of Niger seed and neutral oil after alkali refining reaction. The neutral oil is
centrifuged and goes to decoloration tank after draying. Then the decolored oil goes to
deodorization tower and filtered.

Refining pot: also named De-phosphorylation and de acidification tank. Under 60-70 C, it carries
acid –base neutralization with sodium hydroxide. After stirring by reduction box, it can decrease
the acid level in oil and separate the impurity, phospholipid, which will enter into soap stock. The
oil can be refined further.

Bleaching pot; also named bleaching, dewatering pot, as it removes water from oil by vacuum.
The bleaching earth is breathed in to bleaching pot, after stirring, filtrated by filter and change the
color of the oil.

Vertical blade filter machine; equipped with vertical leaf filter to remove used bentonite from
the oil, operating conveniently and continuously, low laboring tense, keeps environment well,
keeps oil residence in deposable bleaching earth in low level.

Fig 4.4 Filter machine Fig 4.5 Deodorization process

Deodorization pot

It uses USU 304 stainless steel plate, under the vacuum condition of vacuum and high temperature
(220-240C). the deodorization system can remove fatty acid and other rare delicacy high
efficiently. Meanwhile, the pot has the advantage of lowering steam consumption and avoids
hydrolyzation of oil.

14
 The whole process of intermittent refining:_ The process involves oil inlet –heating up –de
acidification---de- alkalizing –washing 2-3 times –dry dehydration. The total time is about 1 hours.

Process characteristics:- Both short mixed and long mixed process are adapted in washing
section, which insures washing effectiveness, equipped with vertical leaf filter to remove used
bentonite from the oil, operating conveniently and continuously, low laboring tense, keeps
environment well, keeps oil residence in deposable bleaching earth in low level.

Accurate stirring method, decrease the maximum distance between the oil from cooling facet so
as to ensure the same temperature of crystal with same quality. It is better guaranteed that in the
process of crystallization, crystal will not cluster in an intense area. In a flexible system, cooling
curve can be easily altered by changing water temperature, thus the kinds of products can be
changed easily.

Packaging technology process :-It involves the following sequence; finished oil tank –bottle
filling –covering presenting the cover –light inspection –spraying the code –pasting label –carton
box.

Engineering Plant machinery and equipment

The plant is going to include state- of -the -art technology at a fair price as summarized below:

Machinery and equipment cost

Qtty Amount/USD Rate Cost/Berr

20tpd oil line machine 1 92,000

8tpd batch oil refining equipment 1 86,000

Automatic high precision filling line 1 42,040

Bottle blowing machine 1 13,330

A complete crushing line including 1 piece 233,370 20.5 4,784085

related spare parts (FOB
Quingdao)

Import processing, transportation and 956,817

installation costs

Total cost 5,740,902

15
Building and construction

The total land area designated for the factory buildings is about 4,000 square meters. A minimum
of total built up area of 1,700 square meters would be allotted for production hall, for officers,
clinic and workers’ quarters and other facilities. The building and construction cost is estimated
based on built up areas and rates for various categories of structures. The factory building and
stores shall be built with local materials and the total estimated cost of construction is estimated to
be Birr 21 million.

5.3. Material and inputs

Raw material: - The principal raw material and consumables required for the production of edible
oil seeds such as Niger seed and cotton seed. Auxiliary and consumable materials needed during
production are caustic soda, bleaching earth, common salt, and packing bottles and card boards.
The annual major raw material i.e. raw oilseeds requirement of the factory is estimated to be about
5,000 tons at full capacity. Moreover, the plant requires large quantities of consumable materials
which are estimated on based the level of production.

Utilities: - Electricity and water are the major utilities required for the factory operation. Energy
consumption of oil factories varies from 650,000 - 1,250,000kwh/annum depending on their
capacities. For the project in question, the electric consumption is estimated to be
1,056,000kwh/year. Similarly, the factory requires large liters of water per day so that water
consumption is assumed to be 28,000 liters per annum. Annual utility requirement and the
corresponding estimated costs are presented below. Furthermore, furnace oil extraction, and it is
estimated to consume 3,866 liters per annum.

Table 4.2: utilities requirement and cost at installed capacity

No Description Unit Qty/year Unit cost Total Cost

(Birr) (Birr)
1 Electricity KWh 1,056,000 0.5 511,420

2 Furnace oil Kg 3,866 16.53 63,903

3 Water M3 28,000 1.5 42,000

4 Total 617,323

Plant capacity and program process

Considering the time needed for developing production and industrial skill by the plant, it is
assumed the project is not expected to start at full capacity, rather it shall begin with a lower level
and shall attain its maximum capacity through time. Accordingly, it is assumed to start operation

16
at a capacity of 70% and progressively increase this capacity utilization annually until it attains
the maximum of 95% at the sixth year and continue the same onwards. The production capacity is
based on 3 shifts of 8 working hours a day and 250 working days a year considering reductions of
Sundays and public holidays in a year and possible downtime due to repair and maintenance works.

The product mix and production level planned in this project are shown below

Product mix and production

S.R Product type Ratio Total

(by weight) Production (Ton)

1 Niger seed oil 35% 1,750

2 Cottonseed oil 65% 3,250

Total 5000

CHAPTER SIX – ENVIROMENTAL ANALYSIS

6.1. Environmental protection and safety
Environmental issues associated with the operational phase of edible oil production and processing
primarily include the following:

• Solid waste and by-products

• Water consumption and management

• Energy consumption and management

6.1.1. Solid waste and by-products

Edible oil processing activities generate significant quantities of organic solid waste, residues and
by-products, the amount of waste generated depends on the quality of the raw materials and on
process efficiency. Wastes, residues, and by-products may be used for producing commercially
viable by-products or for energy generation. Other solid wastes from the Niger seed oil
manufacturing process include soap stock and spent acids from chemical refining of crude oil;
spent bleaching earth containing gums, metals, and pigments; deodorizer distillate from the steam
distillation of refined edible oils; mucilage from degumming; and spent catalysts and filtering aid
from the hardening process.

Recommended techniques for minimizing the volume of solid waste and by-products for disposal
include the following:

17
  Reduce product losses through better production/storage control (e.g., monitor and adjust
air humidity to prevent product losses caused by the formation of molds on edible
materials).
 Collect residues from the raw material preparation phase for conditioning (drying) and
reprocessing (grinding) to yield by-products (e.g., animal feed).
 Return waste and residues to fields to assist in soil nutrient management; for example,
EFBs from oil palm plantations with tree trimmings are a valuable soil amendment and/or
can be composted with vegetable oil wastewater effluent.

6.1.2. Water consumption and management

Edible oil facilities require significant amounts of water for crude oil production (cooling water),
chemical neutralization processes, and subsequent washing and deodorization. General
recommendations to reduce water consumption, especially where it may be a limited natural
resource. Sector-specific recommendations to reduce water consumption, optimize water use
efficiency, and reduce subsequent wastewater volumes include the following:

 When economically viable, consider the use of physical refining instead of chemical
refining to reduce water consumption.
 Replace water-based conveyor systems by mechanical systems
 Use dry clean up techniques before rinsing floors.
 Apply cleaning chemicals using the correct dose and application method.
 Properly treat and discharge cleaning solutions

6.1.3. Energy consumption and management

Edible oil processing facilities use energy to heat water and produce steam both for process
applications and cleaning processes. Other common energy consumption systems include
refrigeration and compressed air. Sector-specific recommendations include the following:

 Improve uniformity of feed to stabilize and reduce energy requirements. Increase

efficiency of air removal in sterilization vessels to improve heat transfer.

 Identify and implement opportunities for process heat exchange

 Where feasible, use anaerobic digestion for wastewater treatment and capture methane for
heat and / or power production.

6.1.4. Social benefit of the project

The envisaged project possesses wide range of benefits that help promote the socio-economic goals
and objectives stated in the strategic plan of the Oromia Regional State. It also boosts the inter-
sectorial linkage between the agricultural and industrial sector. At the same time, therefore, it helps
diversify the economic activity of the region. The other major benefits are listed as follows:

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 Employment and Income Generation the proposed project is expected to create employment
opportunity to several citizens of the region. That is, it will provide permanent employment to 90
professionals as well as support stuffs. Consequently the project creates income of Birr 139.68
thousands per year. This would be one of the commendable accomplishments of the project.
Environment Project: - The proposed production process is environment friendly.
Profit Generation The project is found to be financially viable and earns a profit of Birr 3.72
million within the project life. Such result induces the project promoters to reinvest the profit
which, therefore, increases the investment magnitude in the region.
Tax Revenue In the project life under consideration, the region will collect about Birr 1.37 million
from corporate tax payment alone (i.e. excluding income tax, sales tax and VAT). Such result
create additional fund for the regional government that will be used in expanding social and other
basic services in the region
Import Substitution and Foreign Exchange Saving Based on the projected figure we learn that
in the project life an estimated amount of US Dollar 1.12 million will be saved as a result of the
proposed project. This will create room for the saved hard currency to be allocated on other vital
and strategic sectors

CHAPTER SEVEN: INSTITUTIONAL ANALYSIS

7.1 Man power requirement
Man power requirement vary with level and technology of production involved in the industry in
question. Most mills in the oil production industry are driven to operate 24 hours, 6-7 days a week,
by the high expense of plant and machinery, huge unsatisfied demand and significant production
startup cost, among others. Some mills operate two 12-hour shifts and other operate three 8-hour
shift. Considering the type of work in the involved and other factors, the promoter shall recruit at
least 90 preliminary skilled employees and administrative staff when operation commences. As the
proposed project surrounding is good source of adequate workforce, the required skilled and semi-
skilled manpower would be recruited from the society found in and around the project area.
The following table shows the total manpower requirement and remuneration plan.
Man power requirement plan

Position No. of Monthly Annual salary

employee salary
1 Management
General manager 1 20,000 240,000
Executive-Secretary 1 4,500 54,000
Sub total
2 Production & technical
Department Manager 1 15,500 186,000
Production Supervisions 4 5,500 264,000
Machine Operators 10 3,500 420,000
Mechanical engineer 2 5,500 132,000
Electrician 1 4,500 54,000

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 Forklift Operator 3 3,500 126,000
Laborers 18 1,500 324,000
Sub total 39 1,506,000
3 Quality control &
standard
Department Manager 1 12,500 150,000
Chemist 2 4,500 108,000
Sub total 3 258,000
4 Administration
Department Manager 1 10,500 126,000
Human resource officer 2 4,500 108,000
Safety officer 1 2,500 30,000
Central Archivist 1 2,500 30,000
General service 2 2,500 60,000
coordinator
Receptionist/Tell. 1 1,750 21,000
Operation
Security Head 1 1,500 18,000
Driver 3 2,750 99,000
Wage laborers coordinator 2 1,500 36,000
Security personnel 5 1,500 18,000
Time keeper 3 1,200 43,000
Tools keeper 3 1,200 43,000
Cleaner and Janitor 4 850 40,800
Gardener 2 850 20,400
Messenger 1 850 10,000
Sub total 32 757,800
5 Finance Department
Department Manager 1 10,500 126,000
Financial Analysis 1 6,500 78,000
Accountant 2 5,000 120,000
Cashier 1 2,761 33,132
Sub total 5 357,132
6 Marketing & Customer
Dev`t
Department Manager 1 10,500 126,000
Purchaser 2 5,000 120,000
Sales person 3 5,000 180,000

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 Product 3 3,500 126,000
Receipt/Deliv.officer
Sub total 9 552,000
Total 90 3,724,932

7.2.Organizational structure
Nature, scale and size of business are the normal factors which determine forms of internal
organization. The oil production firm of similar size as the envisaged project currently operating in
Ethiopia have line type of organizational structure, where each department is a complete self-
contained unit. Based on this experience, the organization structure is devised to incorporate owners
at the top followed by general manager and other line departments. The owner will have the power
to control the overall activities of the proposed factory and decide on the highest level attention
requiring issues that impede the normal operation or that affect the future performance of the project.
The General Manager, there will be separate departments which are responsible for their respective
units.
The organizational structure of the factory is proposed to look like the following.

Proposed Organizational chart

Owners
Internal audit

General Manager

Production and Finance Marketing Planning & Human resource

technical Department Department management Development &
department Information administration
Quality control system department
& Management
Production service
Division

Mechanical & Market research Purchasing division

Electrical and promotion
Maintenance division
Human resource
Workshop Administration
Division &Training division
General Accounts Cost & budget
Division Division Accounting
General service
Division 21
 Management: - Deferent sectors of the economy demand different skill level of management and
workforce skill. In order to work in managerial occupations in the oil mill industry, a collage
education is necessary and some positions even require an advanced degree. Many workers in
administrative and managerial occupations shall be those having degrees in business and possess
a combination of technical and business degrees.

CHAPTER EIGHT: PROJECT IMPLEMENTATION

8.1.Project implementation activities
The tasks of implementing the envisaged project will include constructing of factory hall building,
offices and other buildings necessary for smooth operation. Then the promoter shall carry out
procurement of the machinery and equipment. But before these tasks could be completed, Bank
process should be triggered as a partial financing of the projects. Upon finishing of the credit
processing, the project could start operation within ten months’ time.

8.2 Project implementation schedule

Detail implementation program is shown below.

Tasks 2018 2019

Sep Oct Nov Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec

Bank loan
processing

Building
construction
works

Machinery
erection

Procurement of
row material

Training of
employee

Test run

22
Startup of
commercial
production

Loan repayment

CHAPTER NINE: INVESTMENT OUTLAY ESTIMATION AND

FUND ALLOCATION
9.1 Investment requirement
The total cash outlays required for the establishment of the project especially to cover the cost of
building & construction, machinery & equipment, vehicles, office furniture & equipment and
working capital is estimated to be Birr 69.95 million. Including the pre-operating expenses the
total project cost would become Birr 70.19 million.

9.2 Sources of Project Financing

The financing is of the project investment requirement of Birr 70.19 Million is planned to be
sourced from two parties: equity and debt to be obtained from bank on long term basis to be repaid
within nine years of the project life with 2 years of grace periods payable from the proceeds of
direct sales revenue within the project life. The bank loan is interest bearing one with an interest
rate of 8.5% repayable quarterly within eight years of the project life assuming that the project will
continue its business as a going concern of business entity.
The total owner’s equity contribution of Birr 21.25 million (30%) earmarked for covering of
building & construction and the pre-operative expenses as well, whereas, the 48.95 million (70%)
will be financed through bank borrowing. By taking long term bank loan the company intended to
finance the procurement of new edible oil processing machinery & equipment, vehicles, office
furniture & equipment and working capital.
The proposed financing structure is depicted in the following table:
Table 6.1:

Proposed Financing Arrangement

Discretion Bank Loan Equity Total project cost

1.Capital Investment

Building & Construction 21,000,000 21,000,000

Plant & Machinery 5,740,902 5,740,902

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 Vehicles 14,373,518 14,373,518

Office Equipment & furniture 334,173 334,173

Sub-total 20,448,593 21,000,000 41,448,593

2. Pre-operating costs 250,000 250,000

Sub-total 250,000 250,000

3. Working Capital

Sub-total 29,130,945 29,130,945

Grand Total 49,579,538 21,250,000 70,829,538

Ratio 70% 30% 100%

CHAPTER TEN: FINANCIAL ANALYSIS AND SENSITIVITY

ANALYSIS
10.1. Financial Analysis of the project
10.1 Estimation total Sales
The financial projections are made for a period of ten years. Total sales revenues of the project are
determined based on various criteria that consists types of products sold, total quantities of
products sold, and selling prices of the products. As per the detail machinery specifications
provided by the selected supplier, the subject plant is envisaged to have 20 ton/day (TPD) oil
milling line at installed capacity.

The overall plant system is designed with especial features that enable the production of edible oil
from various types of oil seeds such as Niger seed, soybean, cotton seed, and sunflower. The
technology selected offers greater opportunity to produce edible oils from any of the given oil
seeds variety based on the prevailing market situation. Taking into account the current market
demand, raw materials availability and future prospects, the subject project is planned to produce
edible oil of Niger seed and cotton seed at a product mix ratio of 35% and 65%, respectively. The
larger production proportion of edible oil production will of cotton seed oil due to availability of
the raw materials in the market in abundance.
The project under consideration when it is at operation generates income mainly from two business
activities: sales of refined edible oil and by-products (oil cake). The oil is sold to the general public
for cocking food whereas the oil cake will sold to commercial livestock farms such as dairy,
poultry, and fattening farms.

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At installed capacity utilization the envisaged project is planned to generate Birr 96.69 million.
Considering the existing high demand for edible oil in the market, the plant is proposed to start at
capacity utilization rate of 70% in the initial year and with 5% increment per annum the project is
expected to reach maximum attainable capacity of 95% in the sixth year.

10.1.1. Production plan and Revenue projection

10.1.Profit/loss statement
As per the projected profit and loss statements, the project is planned to generate a net income of
Birr 3.1 million in the first year which is projected to grow to Birr 12.8 million in the tenth year.
The profit of the project expected at its initial investment period is taken as reasonable in view of
various project implementation aspects and influences.
10.2.Cash Flow Statement
The project shall add values and generate positive cash flow throughout the ten consecutive years
and it is also expected bring higher cash inflows in future periods of the business. During these
periods, it generates an average net profit of Birr 9.11 million. The business is projected to register
a net cash flow of Birr 2.78 million in the first year that will grow to a cumulative net cash flow
of Birr 36.19 million in the tenth year. This shows its ability to meet its obligations on time,
effectively and efficiently. All in all, the project is liquid throughout its life.

10.3.Balance Sheet

Assets of the envisaged project s are naturally the total initial investment at the beginning year.
Whereas, the liabilities constitute Birr 48.1 million of long term loan at end of the first year that
makes up 70% of total assets or capital invested for the project, and no balance of liabilities shall
appear at the end of the ninth year.
Throughout the business life, the project creates additional values as it is financially strong and
can settle its obligations through the added value. Through the operational life it builds up its own
capital which is expected to rise to Birr 84 million at end of 10th year.
Net Present Value:-The net present value (NPV) as discount rate of 10% is nearly Birr
10.46million indicating that investment in the business venture is recommendable.

Internal Rate of Return:-A commercial profitability analysis indicates that the plant will generate
a reasonable rate of return. The internal rate of return (IRR) for the project after and before tax is
expected to be 23% and 26%, respectively. The Financial Internal Rate of Return both after and
before income tax is higher than the economic rate of return of about 11%. This indicates that the
project is financially viable one.

10.4 Sensitivity Analysis

The previous sections provided an analysis of the proposed venture in static form and with strict
assumptions of unchanged parameters. This section explores the impact upon net income when a

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single parameter is allowed to vary while all others are held constant. The most significant factor
impacting net income is the price received for refined edible oil. Revenue received from edible oil
sales represents 83.35% of the total revenue stream. The remaining income i.e. about 16.65% of
total income comes from sales by-products (or oil cakes). The business model can withstand some
volatility in the market. In this regard, based on the test made the project can sustain a 10%
decrease in income while the operating costs are remain constant with 14% and 12% IRR before
and after tax, respectively. Similarly, a 10% increase in operating costs while revenue remain
constants yield IRR of 16% and 14% before and after tax, respectively.

The major challenges of the edible oil processing plant in Ethiopia today is the ever increasing
cost of raw materials (oils seeds) and the stagnant selling price of the final products. Though the
government has not directly imposed price ceiling on local oil producers being the major
consumable items in every household it is somewhat very difficult to raise price since it creates
popular uproar. To withstand this situation, the company should purchase adequate stock of raw
material during harvesting seasons and store to be able to compensate the higher purchase costs
during the rest seasons of the production year.

o Employees’ benefits assumed to be about 25% of wages and salaries

o Per diem assumed to be at least about 0.1% of revenue
o Promotion expense assumed to be a least about 0.2% of revenue
o Insurance expense assumed to be about 0.05% of value of assets of the factory
o Repair and insurance assumed to be about 0.02% of fixed assets

Depreciation and Amortization

Description Depreciation Rate

Building and Construction 5%

Machinery and Equipment’s 20%

Vehicles 20%

Office furniture and Equipment’s 20%

Pre operating expenses 20%

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CHAPTER ELEVEN: CONCLUSIONS AND SUGGESTIONS

In Ethiopia edible oil has been in its lowest mode of production for a number of years. Most in the
small-scale oil mill sector were supplying the market with oil in crudest form, with the oil seeds
crushed by mill and filtered through a thin cloth, locally Shemma. Their product hardly underwent
any kind of refining process. After issuance of the proclamation which compels industry operator
processing other oilseeds to go through an industrial refining process, this supply has been banned
and those small scale industries supply crude oil to refineries. Currently there are about 40 refining
and semi refineries known to operate in a medium and large scale oil mill firms in the country.
As it is depicted in the table below, the edible oil volume of production in Ethiopia shows erratic
nature from the year 2007 to 2012 expect in the year 2011 which shows significant increase.
However, it shows a general tendency of growth induced by high local demand. The actual
production trend showed an annual edible oil production growth rate of 3.9% from 2010 to 2013
as depicted in the table below.
Taking into account the current market demand, raw materials availability and future prospects,
the subject project is planned to produce edible oil of Niger seed and cotton seed at a product mix
ration of 35% and 65%, respectively. The larger production proportion of edible oil production
will of Cotton seed oil due to availability of the raw materials in the market in abundance. We
can’t however rule out the situation in which the company can produce other types of edible oil as
dictated by the market and raw materials availability.

Niger Seed: - Recovering rate of Niger seed crude oil to refined oil under the technology to be
used (press solvent extraction method) results in 97% will be refined oil. The res 3% is refiner
loss.

Cotton Seed: - By the same token, the conversion rate of crude oil to refined oil per a given
quantity of cotton crude oil is about 99%. Hence, only about 1% of the crude oil extracted through
Mechanical pressing method is lost during solvent extraction method.

The main product of the plant (refined edible oil) is a major household consumable product; hence,
it will be distributed directly to consumers or through wholesaler or agents. The target market for
byproduct Oil Cake is poultry, dairy, fattening and related farming activities carried out by
individuals, private companies and cooperatives.

Therefore based on the financial analysis made, the envisage project will be profitable and viable.

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 References
- Edible oil processing by Wolf Hamm, Rechard J, and Giji Calows second edition
- Oil refinery in 21st century energy efficient cost efficient and environmentally Benign
- Palm oil processing Technology
- foreign Trade statistics and *** statistical abstract, CSA

- Project proposal Writing by BESIM NEBIU

- The Open University

- http://writing.engr.psu.edu/workbooks/proposal_guidelines.pdf

- http://www.dsengineers.com/en/sectors-of-activities/edible-oils-meal/edible-oil-
production/vegetable-oil-refining.html

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