89.

PROFILE ON PRODUCTION OF PRECIPITATED SILICA (SILICON DIOXIDE)

89-2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

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II.

PRODUCT DESCRIPTION & APPLICATION

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III.

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

89-4 89-4 89-7

IV.

MATERIALS AND INPUTS A. RAW MATERIALS B. UTILITIES

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V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

89-8 89-8 89-9

VI.

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

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VII.

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

89-11 89-11 89-12 89-13 89-14

89-3

I.

SUMMARY

This profile envisages the establishment of a plant for the production of silica (silicon dioxide ) with a capacity of 200 tonnes per annum.

precipitated

The present demand for the proposed product is estimated at 166.83 tonnes per annum. The demand is expected to reach at 402.03 tonnes by the year 2020.

The plant will create employment opportunities for 33 persons.

The total investment requirement is estimated at Birr 4.16 million is required for plant and machinery.

8.33 million, out of which Birr

The project is financially viable with an internal rate of return (IRR) of present value (NPV) of Birr 4.45 million discounted at 8.5 %.

22 % and a net

II.

PRODUCT DESCRIPTION AND APPLICATION

Precipitated silica is industrial non-reactive filler which possesses large surface area, high absorption capacity, and high hardness. It imparts good finish and strength and balances the required physico- chemical properties of the product, to which it is applied. Precipitated silica has industrial applications in rubberized foot wear, paint, dyes, printing ink, and plastic products.

89-4 III. MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply & Present Demand

Precipitated silica (silicon dioxide) is a non-reactive filler which possesses large surface area, high absorption capacity and high hardness. Precipitated silica has applications in rubberized footwear, paint and dyes, printing ink and plastic products.

The country's demand for the product is entirely met through import. Table 3.1 shows the yearly supply of silicon dioxide during the period 1998 - 2006.

Table 3.1 IMPORT 0F PRECIPITATED SILICA (SILICON DIOXIDE)

Year

Qty (tonnes)

Value (000 Birr) 392.35 172.11 2,285.89 1,921.25 1,222.11 2,467.43 1,761.77 3,217.32 310.39 13750.62 1527.85

1998 1999 2000 2001 2002 2003 2004 2005 2006 Total Average

22.1 392.35 4.22 263.85 184.74 104.13 132.16 129.69 268.25 1501.49 166.83

Source: Customs Authority, Annual External Trade Statistics.

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As shown in Table 3.1 the supply from import fluctuates from year to year without any trend. For example, import during the period 1998-2001 ranges between 4.22 tonnes to 392.35 tone. Likewise import during 2002 2006 ranges from 104.13 tonnes to 268.25 tonnes. During the period of analyses highest import was in 392.35 in year 1999 and the lowest in 2000 ( 4.22 tonnes).

Although the import data is very erratic during 1998-2006, the country has been importing on the average about 166.83 tonnes of silicon dioxide per year.

In order to determine the present demand the average quantity imported during the period 1998 2006 has been assumed as the effective demand for the year 2007.

Accordingly, the present effective demand for the product is estimated at 166.83 tonnes.

2.

Projected Demand

Demand for silicon dioxide grows with the expansion of user industries. The industrial sector in the past four years was growing at annual average rate of 7% which is adopted for demand projection. The demand projection executed using this growth rate is shown in Table 3.2.

89-6 Table 3.2 PROJECTED DEMAND (TONNES)

Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Qty. 178.51 191.00 204.37 218.68 233.99 250.37 267.89 286.65 306.71 328.18 351.15 375.73 402.03

3.

Pricing and Distribution

The average C&F price of silicon dioxide in 2006 is found to be Birr 6250/tonne. Allowing 40% for various chargers an ex-factory price of Birr 8750 per tonne is recommended.

For this product the suitable distribution system is direct sale to end users. This system is selected for the reason that the end users for the product are few in number while their individual consumption is high.

89-7 B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

Based on the outcome of the market study, the capacity of the envisaged plant is about 200 tonne/annum when operating in one shift/day (8 hours/ shift) and 300 days/annum. The capacity can be doubled of further increased, without increasing any significant fixed investment cost, by increasing the number of shifts.

2.

Production Programme

The production program is related to the forecasted demand. Therefore, the capacity utilization rate will be, 75% and 85% for the first and second year respectively. Form the third year onwards full capacity production will be maintained. The production programme is set by assuming that repair and maintenance works will be carried out during off-production hours.

IV.

MATERIALS AND INPUTS

A.

RAW MATERIALS

The principal raw materials are sodium silicate and sulfuric acid and the total annual cost of these materials is estimated at Birr 1,100,290 (see Table 4.1).

89-8 Table 4.1 ANNUAL RAW MATERIAL REQUIREMENT (AT FULL CAPACITY)

Sr. No 1 2

Material

Qty. (Tonnes) Foreign 647.22 138.69 785.91

Cost, 000 Birr Local 258.90 55.48 314.38 Total 906.12 194.17 1100.29

Sodium Silicate Sulfuric Acid Total

280 120

B.

UTILITIES

The annual consumption (at full capacity) of electricity and water is about 120,000 kWh and 1600m3, respectively. Furthermore, coal and kerosene will also be consumed and the annual requirement of these materials is estimated to be 250 tons and 150 m3, respectively. The total cost of the above utilities will be Birr 1,241,159.

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

Sodium silicate is dissolved in a pressure vessel using steam which is diluted to obtain desired concentration of sodium silicate. The sodium silicate solution is then hydrolyzed with sulfuric acid to obtain precipitated silica. This slurry of precipitated silica is then filtered through a membrane filter and dried in a spray drier.

89-9 2. Source of technology

The technical data and information are compiled from a document provided by the National Research development corporation of India.

B. 1.

ENGINEERING Machinery and equipment

The list of machinery and equipment of the proposed plant is indicated in Table 5.1 and the total cost of these items is estimated to be Birr 4,160,700 out of which Birr 3,618,000 is in foreign currency.

2.

Land, Building and Civil Works

The total area of the proposed plant is 3000 m2, out of which 1,000 m2 is a built up area. Therefore, the annual land rent cost is estimated to be Birr 2,400 and the cost of building, including civil work is about Birr 2,500,000.

3.

PROPOSED LOCATION

The envisaged plant shall be located in Hossana town, Lemo Woreda of Hadiya Zone. Table 5.1 LIST OF MACHINERY AND EQUIPMENT Sr. No 1 2 3 4 5 6 7 Machinery Boiler Pressure vessels Tanks (for sodium silicate, with motor gear) Filter press Spray dryer Sulfuric acid storage tank Reactors Qty 1 2 5 1 1 1 1

89-10 VI. MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The manpower requirement of the envisaged plant is indicated in Table 6.1. In addition, the cost of training, which may take place during the erection and commissioning phase is about Birr 30,000.

Table 6.1 MANPOWER REQUIREMENT AND ANNUAL SALARY COST

Sr. No 1 2 3 4 5 6 7 8 9

Position

Req. No.

Salary, (Birr) Monthly 2,500 2,000 1,500 1,200 600 3,600 1,600 2,500 1,600 Annual 30,000 24,000 18,000 14,400 7,200 43,200 19,200 30,000 19,200 30,780

General manager Production and technical manager Chemist Accountant Secretary Operators & Technicians Ass. Operator Production Workers General service Benefit (15% BS) Total

1 1 1 1 1 6 4 10 8

33

235,980

B.

TRAINING REQUIREMENT

No special training arrangement required for the envisaged project.

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VII.

FINANCIAL ANALYSIS

The financial analysis of the

precipitated silica

project is based on the data presented

in the previous chapters and the following assumptions:-

Construction period Source of finance

1 year 30 % equity 70 % loan

Tax holidays Bank interest Discount cash flow Accounts receivable Raw material local Work in progress Finished products Cash in hand Accounts payable

3 years 8% 8.5% 30 days 30 days 1 days 30 days 5 days 30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 8.33 million, of which 51 per cent will be required in foreign currency.

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

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Table 7.1 INITIAL INVESTMENT COST

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

Total Cost (000 Birr) 192.0 2,500.0 4,160.7 125.0 450.0 620.7 281.8 8,330.2 51

* N.B Pre-production expenditure includes interest during construction ( Birr 470.65

thousand ) and

Birr 150 thousand costs of registration, licensing and formation of the company including legal fees, commissioning expenses, etc.

B.

PRODUCTION COST

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

3.77

million (see Table 7.2). The material and utility cost accounts for 62.05 per cent, while repair and maintenance take 2.65 per cent of the production cost.

89-13 Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

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

Cost 1,100.29 1241.16 100 141.59 47.2 94.39 2,724.63 673.57 375.48 3,773.68

% 29.16 32.89 2.65 3.75 1.25 2.50 72.20 17.85 9.95 100

C.

FINANCIAL EVALUATION

1.

Profitability

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

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

89-14

2.

Break-even Analysis

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

BE =

Fixed Cost Sales Variable Cost

25 %

3.

Pay Back Period

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

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 22 % and the net present value at 8.5 % discount rate is Birr 4.45 million.

D.

ECONOMIC BENEFITS

The project can create employment for 33

persons.

In addition to supply of the

domestic needs, the project will generate Birr 3.15 million in terms of tax revenue. The establishment of such factory will have a foreign exchange saving effect to the country by substituting the current imports.