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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