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					137. PROFILE ON SMALL SCALE PAPER
            MAKING
                              137-2


                      TABLE OF CONTENTS
                                                  PAGE


 I.    SUMMARY                                    137 -3


II.    PRODUCT DESCRIPTION & APPLICATION          137 - 3


III.   MARKET STUDY AND PLANT CAPACITY            137 - 4
       A. MARKET STUDY                            137 - 4
       B. PLANT CAPACITY & PRODUCTION PROGRAMME   137 - 7


IV.    MATERIALS AND INPUTS                       137 - 8
       A. RAW MATERIALS                           137 - 8
       B. UTILITIES                               137 - 8


V.     TECHNOLOGY & ENGINEERING                   137- 9
       A. TECHNOLOGY                              137 - 9
       B. ENGINEERING                             137 - 10


VI.    MANPOWER & TRAINING REQUIREMENT            137 - 12
       A. MANPOWER REQUIREMENT                    137 - 12
       B. TRAINING REQUIREMENT                    137 - 13


VII.   FINANCIAL ANLYSIS                          137 - 14
       A. TOTAL INITIAL INVESTMENT COST           137 - 14
       B. PRODUCTION COST                         137 - 15
       C. FINANCIAL EVALUATION                    137 - 16
       D. ECONOMIC BENEFITS                       137 - 17
                                         137-3


I.     SUMMARY


This profile envisages the establishment of a plant for the production of paper with a
capacity of 7,500 tonnes per annum.


The present demand for the proposed products is estimated at 136,000 tonnes per
annum. The demand is expected to reach at 379,454 tonnes by the year 2017.


The plant will create employment opportunities for 75 persons.


The total investment requirement is estimated at Birr 38.55 million, out of which Birr
20 million is required for plant and machinery.


The project is financially viable with an internal rate of return (IRR) of 29 % and a net
present value (NPV) of Birr 41.26 million, discounted at 8.5%.




II.    PRODUCT DESCRIPTION AND APPLICATION


Paper is a material made from pulped wood or a variety of other materials like
baggasse of sugar cane, straw, trees of vegetables and other cellulose materials.


In this profile paper from pulped wood is considered and it is intended that this raw
material shall be provided by out growers.


Paper is used for writing and printing, for wrapping and packaging, and for a variety
of other applications ranging from kitchen towels to the manufacture of building
materials


The most commonly used paper types are stationary paper (i.e. printing and writing),
newsprint, wrapping & packaging, and paper card.


Most of the raw materials required for production of paper have to be imported.
However, there is an established domestic market for the product as evidenced by the
                                           137-4


quantity of the product annually imported. Therefore, the envisaged project is aimed
at substituting the current import.


III.   MARKET STUDY AND PLANT CAPACITY


A.     MARKET STUDY


1.     Past Supply and Present Demand


Paper is made from pulped wood or a variety of other materials like bagasse of
sugarcane, straw, trees of vegetables and other cellulose materials. Paper is used for
writing and printing, for wrapping and packaging, and for a variety of special purpose
ranging from the filtration of precipitates from solutions to the manufacture of certain
types of building materials. Paper products include writing paper, note books, file
paper, colander, paper table clothes, covers, cases, napkins, cardboards etc.


Paper is a necessity in modern civilianization and has been largely      responsible for
the increases in literacy and raising of educational levels of people throughout the
world. All economic and social sectors demand paper for their day to day activities.
Due to its influences in every activity the demand is increasing at higher rate.


The demand for paper in Ethiopia is both met through import and local production.
However, due to the existence of only one paper factory in the country, i.e Ethiopian
Pulp and Paper Factory located at Wonji, the bulk of the supply is from import. The
domestic production of paper and boxing paper and import of paper and paper board
in the past five years is given in Table 3.1.
                                         137-5


                                       Table 3.1
DOMESTIC PRODUCTION OF PAPER & BOXING PAPER AND IMPORT
                      OF PAPER AND PAPER BOARD (TON)


                       Domestic
Year (E.C)             Production                     Import            Total
              Qty            Share %        Qty           Share %       Quantity
1991/92       9,234          21.6           33,575        78.4          42,809
1992/92       9,906          2.0            485,260       98.0          495,166
1993/94       8,610          18.6           37,578        81.4          46,188
1994/95       10,253         27.7           26,729        72.3          36,982
1995/96       12,685         11.5           97,652        88.5          110,337
Total         50,688         6.9            680,794       93.1          731,482
Average       10,138         6.9            136,158       93.1          146,296


  Source:- Statistical Abstract of Ethiopia CSA


Even though the supply of paper is met through both domestic production and
imported products the market is quite dominated by imports. During 1991/92 -
1995/96 E.C, the best supply offered by the domestic manufacturer (EPPF) was
12,685 tons while the yearly average consumption during the same period was
146,296 tons. This means that domestic production on the average satisfies last than
10% of the total demand


Total apparent consumption (Local ad imported) during the past five years ranged
from 36,982 tons (1994/95) to 495,166 tons (1992/93). The mean apparent
consumption during those years was 146,296 tons. In the absence of a trend in the
total apparent consumption the mean, which is 146,296 tons, is taken to represent the
current demand. The current unsatisfied demand which excludes domestic production
(about 10,000 tons) would thus be 136,000 tons.
                                          137-6


2.     Projected Demand


The demand for paper is ever increasing due to increasing economic and social
activities. The demand for paper is increasing as the number of literate people in the
country grows. The education sector in the past few years has been increasing
tremendously and as a result the demand for paper required for the manufacture of
exercise books and for printing of various types of educational materials has grown,
substantially. On the other hand, the manufacturing sector demands various types of
paper for packing, labeling etc. Other economic and social sectors also demand paper
for various purposes.    Considering the above argument, demand for paper will
increase by 10% per annum.           The demand projection executed on the above
assumption is presented in Table 3.2.


                                        Table 3.2
                  PROJECTED DEMAND FOR PAPER (TON)


           Year              Total           Domestic        Unsatisfied
                           Demand           Production        Demand
                2008            160,925             10,000         150,925
                2009            177,018             10,000         167,018
                2010            194,720             10,000         184,720
                2011            214,192             10,000         204,192
                2012            235,611             10,000         225,611
                2013            259,172             10,000         249,172
                2014            285,090             10,000         275,090
                2015            313,598             10,000         303,598
                2016            344,958             10,000         334,958
                2017            379,454             10,000         389,454


Due to the huge unsatisfied demand and wide market a number of medium to large
scale industries can be established in different parts of SNNPR.
                                          137-7


3.     Pricing and Distribution


Base on the average producers price (CSA,2006) the recommend factory gate price
for the envisaged, project is Birr 11,502 per ton .


The product can be distributed by the existing stationery materials distributing
enterprises.


B.     PLANT CAPACITY AND PRODUCTION PROGRAMME




1.      Plant Capacity


According to the market study, the unsatisfied demand of paper in the year 2008 will
be 150,925 tons, whereas this demand will grow to 44,345.16 tons by the year 2017.
Taking the economic scale of production, and the avilabilty of the major raw material
into account, the envisaged plant will have an annual production capacity of 7,500
tons of paper will be installed. Production capacity is based on a schedule of 300
working days per annum and 3 shifts of eight hours per day.


2.     Production Programme


The envisaged production programme is given in Table 3.3 below. The schedule is
worked out in consideration of the time required for gradual build-up in labour
productivity and fine-tuning of machinery. Production will start at 75% of plant
capacity in the first year of operation and reach full-gear in the 3rd year of operation
and thereafter.
                                        Table 3.3
                           PRODUCTION PROGRAMME


      Year                                               1         2         3-10
      Capacity Utilization [%]                          75        85         100
      Production [tons]                               5,625    6,375       7,500
                                                137-8


IV.       MATERIALS AND INPUTS


A.        RAW MATERIALS


The raw materials required for the envisaged small-scale paper plant are indicated in
Table 4.1 below. All of the raw materials required have to be imported.


                                            Table 4.1
      ANNUAL RAW MATERIALS REQUIREMENT AND COSTS (TONS)


      Sr.     Description          Qty.            L.C            F.C         Total
      No.
          1   Pulped Wood         18,750           14,062.5                    19,687.5
          2   NaOH                2,010            3,835.08      8,948.52      12,783.6
          3   Cl2                  375              297.94        553.31        851.25
          4   CaO                 101.25             42.53            78.98       121.5
          5   Total                                18,238.1      9,580.81      33,443.9


B.        UTILITIES


Electricity water and stem are the three major utilities required by the plant. Steam is
supposed to be generated by electric boilers; hence, its costs to the project are
included in electricity and water costs. Table 4.2 below shows annual requirements
and associated costs at full production capacity. Annual cost of utilities, at the
proposed full production capacity, is estimated at about Birr 8,436,380.00.
                                            Table 4.2
                ANNUAL UTILITIES REQUIREMENT AND COSTS


      Sr.                                Unit of                              Cost ('000 Birr)

      No.           Description       Measure                   Qty

      1       Electricity                 kWh                 800,000                     378.88
      2       Water                        m3                 400000                       4000
      3       Furnace oil                  lt                 750,000                     4057.5
      4       Total                                                                     8436.38
                                         137-9


V.       TECHNOLOGY AND ENGINEERING


A.       TECHNOLOGY


1.       Production Process


The process of making paper is based on the fact that wet cellulose fibers bind
together when dried under restraint. The processing of paper usually involves the
initial separation of the cellulose fibers to form a wet pulp, some form of treatment,
such as beating and refining, while in the pulped state, to enhance the quality of the
final product, then forming of the sheet paper by hand molding or by paper making
machine, and drying. Some further processing is often carried out before or during
drying to acquire the desired finish.


The stages involved in transforming raw materials into paper in a small-scale mill are
the following operations:


        Delivery and preparation:
            Bleaching and refining,
            Sheet forming,
            Coating, drying & calendaring, and
            Cutting & packing.


Effluent treatment and disposal is another topic, which needs careful attention. The
effluent from a paper mill can contain different chemical species, which, if discharged
directly into the environment, would cause untold damage. In medium and large-scale
plants specialized recovery equipment is used to reclaim chemicals for reuse or for
incineration to provide energy. This is not cost effective in smaller plants and so some
form of treatment and/or disposal is required. Biological treatment plants, such as the
anaerobic digester, are sometimes used to treat the effluent. This method has the
added benefit of producing methane through digestion of the organic matter in the
effluent, which can be used to provide as much as 30 % of the mills energy
requirement. The remaining sludge can then be disposed of on the land.
                                        137-10


2.     Source of Technology


The manufacturing technology and machinery for small-scale paper production can be
obtained from renowned suppliers in Europe and Asia. The following company can
be contacted for the supply of machinery and knowhow:


Small Industries Research Institute (SIRI),
PO Box 2106, 4/43 Roop Nagar,
Delhi 110 007, India.
Tel: +91 11291 81 17


B.     ENGINEERING


1.     Machinery and Equipment


The list of machinery and equipment required for a small-scale paper making plant is
given in Table 5.1 below. It should be understood that a pulp-& paper mill is
generally capital intensive. On this basis, total cost of machinery and equipment is
estimated at about 20 million out of which Birr 13 million is required in foreign
currency.
                                         137-11


                                        Table 5.1
                       LIST OF MACHINERY AND EQUIPMENT


 Sr. No.                           Description                            No. [Set]
     1        Pulper                                                          1
     2        Breaker                                                         1
     3        Beater / refiner                                                1
     4        Washer                                                          1
     5        Refining equipment                                              1
     6        De-flaking equipment                                            1
     7        Screen                                                          1
     8        Cleaners                                                        1
     9        Fourdrinier machine                                             1
     10       Headbox or flow-box                                             1
     11       Press                                                           1
     12       Dryer                                                           1
     13       Reeling, winding and sheeting equipment,                        1
     14       Handling equipment                                              1
     15       Size press Machine                                              1
     16       Cutting machine                                                 1
     17       Laboratory equipment                                           Set
     18       Auxiliary equipment                                            Set
     19       Boiler                                                          1


2.        Land, Building And Civil Works


The plant requires a total of 7,500 m2 area of land, out of which 3,000 m2 is built-up
area which includes processing area, raw material stock area, offices, etc. Assuming
construction rate of Birr 2,500 per m2, the total cost of construction is estimated to be
Birr 7.5 million. The total cost, for a period of 80 years with cost of Birr 1 per m2, is
estimated at Birr 7,500. The total investment cost for land, building and civil works is
estimated at Birr 7,507,500.
                                            137-12


3.       Proposed Location


A manufacturing enterprise that has to import raw materials required such as the
envisaged one prefer location which is near to port or that has easy access to port.
Moreover, availability of infrastructures such as power and nearness or easy accesses
to major markets is also additional critical factors.         Accordingly, due to the
availability of the following facilities;

       Road net work that connect to major towns within the region and other
         regions
       Availability of Infrastructure such as power and water
       Communication facilities ( telephone, fax, internet, etc.)
       Relatively large market

Arbaminch Zuria, Awassa Zuria and Wonago woredas are selected as a possible location
for the envisaged plant.

Moreover, after analysing the comparative advantages and disadvantages of the selected
woredas and the requirements of the envisaged project the capital of Awasa Zuria
woreda i.e. Awassa town is selected as the best location.


VI.      MANPOWER AND TRAINING REQUIREMENTS


A.       MANPOWER REQUIREMENT


Table 6.1 presents the list of manpower required and the estimated annual labour
costs. Total manpower requirement, including skilled and unskilled labour, is 75
persons. Correspondingly total annual labour cost, including fringe benefits, is
estimated at Birr 726,750.
                                         137-13


                                        Table 6.1
              MANPOWER REQUIREMENT AND LABOUR COST


 Sr.                     Job Position               Req.     Monthly            Annual
 No.                                                No.       Salary            Salary
                                                               [Birr]           [Birr]
     1.   General Manager                           1                   3000            36000
     2.   Production & Technical Manager            1                   2500            30000
     3.   Pulp Mill Division Head                   1                   2000            24000
     4.   Paper Mill Division Head                  1                   2000            24000
     5.   Finance & Administration Manager          1                   2200            26400
     6.   Commercial Manager                        1                   2200            26400
     7.   Accountant                                1                    800             9600
     8.   Sales Person                              1                    800             9600
     9.   Purchaser                                 1                    600             7200
     10. Clerk                                      3                    900            10800
     11. Secretary                                  2                   1200            14400
     12. Quality Control Manager                    1                   2000            24000
     13. Production Foreman                         4                   4000            48000
     14. Chemist                                    1                   1000            12000
     15. Operator                                   24              14400           172800
     16. Mechanic                                   2                   1200            14400
     17. Electrician                                2                   1200            14400
     18. Unskilled labor                            20                  4000            48000
     19. Guard                                      3                    450             5400
     20. Diver                                      4                   2000            24000
     21. Total                                      75              48450           581400
     22. Worker’s Benefit = 25% of Basic Salary                   12112.5           145350
     23. Grand Total                                              60562.5           726750


B.        TRAINING REQUIREMENT


An on-site training programme can be arranged for key production, maintenance and
quality control personnel in consultation with the machinery and technology supplier.
                                         137-14


Additionally, a training programme can be arranged at the Ethiopian Pulp & Paper
Share Company.


Cost of a training of this nature is estimated at about Birr 300,000.



VII.   FINANCIAL ANALYSIS


The financial analysis of the paper project is based on the data presented in the
previous chapters and the following assumptions:-


Construction period                    1 year
Source of finance                      30 % equity
                                       70 % loan
Tax holidays                           3 years
Bank interest                           8%
Discount cash flow                     8.5%
Accounts receivable                    30 days
Raw material local                     30days
Raw material, import                   90days
Work in progress                       2 days
Finished products                      30 days
Cash in hand                           5 days
Accounts payable                       30 days


A.     TOTAL INITIAL INVESTMENT COST


The total investment cost of the project including working capital is estimated at Birr
38.55 million, of which 59 per cent will be required in foreign currency.


The major breakdown of the total initial investment cost is shown in Table 7.1.
                                                137-15


                                             Table 7.1
                               INITIAL INVESTMENT COST
                 Sr.                                                     Total Cost
                 No.                  Cost Items                         (‘000 Birr)
                1        Land lease value                                      600.0
                2        Building and Civil Work                             7,500.0
                3        Plant Machinery and Equipment                      20,000.0
                4        Office Furniture and Equipment                        175.0
                5        Vehicle                                               650.0
                6        Pre-production Expenditure*                         1,944.6
                7        Working Capital                                     7,688.8
                         Total Investment cost                              38,558.4
                                    Foreign Share                            59


     * N.B Pre-production expenditure includes interest during construction (Birr 1.54 million)
     training (Birr 300 thousand) and Birr 100 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 of the plant is estimated at Birr
46.80 million (see Table 7.2).         The material and utility cost accounts for 89.47 per
cent, while repair and maintenance take 0.53 per cent of the production cost.
                                         137-16



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


                               Items                  Cost         %
                   Raw Material and Inputs         33,443.90     71.45
                   Utilities                        8436.38      18.02
                   Maintenance and repair             250         0.53
                   Labour direct                     348.84       0.75
                   Factory overheads                 116.28       0.25
                   Administration Costs              232.56       0.50
                   Total Operating Costs           42,827.96     91.49
                   Depreciation                      2632.5       5.62
                   Cost of Finance                  1349.11       2.88
                   Total Production Cost           46,809.57      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.
                                         137-17



2.     Break-even Analysis


The break-even point of the project including cost of finance when it starts to operate
at full capacity (year 3) is estimated by using income statement projection.
                              BE =             Fixed Cost     = 27 %
                                      Sales – Variable Cost


3.     Pay-Back Period


The investment cost and income statement projection are used to project the pay-back
period. The project's 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 29% and the net
present value at 8% discount rate is Birr 41.26 million.


D.     ECONOMIC BENEFITS


The project can create employment for 75 persons.           In addition to supply of the
domestic needs, the project will generate Birr 20.79 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.

				
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