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PP Woven Bag Production Feasibility Study In Azerbaijan 2009-11-30

Prepared by First Myung Jin Co. / Kolon I’net Corp.

PP Woven Bag Production Business plan

Table of Contents I. Market Study ...................................................................................................... 5

1. Country (Azerbaijan) Overview.......................................... ................................................................ ............................................ ............................. ....... 5 1.1 General Information ..................................... ........................................................... ............................................ ............................................ .............................. ........ 5 1.1.2 Geographical data................................ data...................................................... ............................................ ............................................ .................................. ............ 6 1.1.3 Economy ........................................... ................................................................. ............................................ ............................................ ........................................ .................. 6 1.2. The important regulation about foreign investments or JV .......................... ............................................ .................. 8 1.3 The procedure of JV establishment.......................................... ............................................................... ......................................... .................... 10 1.4. Tax System ......................................... ............................................................... ............................................ ............................................ ....................................... ................. 14 1.5. Labor employing circumstance circumstance ............................................ ................................................................. ........................................... .......................... 21 1.6 The Important Business culture to note in advance ................................ ...................................................... .......................... 23 2. The General Status of the market of PP woven bags (PPWB) (P PWB) in Azerbaijan .................25 2.1 The General Status of the market ......................................... ............................................................... ............................................ .......................... 25 2.2 State support for agriculture agriculture (specially grain producing) in Azerbaijan ..................... ..................... 27 2.3 The status of the demand and supplying ..................................................... ......................................................................... .................... 28 2.3.1 Applicable Applicable industrial fields .............................. .................................................... ............................................ .......................................... ....................28 2.3.2. Main suppliers of PP bag............................................ ................................................................. ........................................... ................................ .......... 38 2.3.3 Quality and Prices in the market........................................... ................................................................. .......................................... ....................42 ................................................................. .................................... .............. 45 III Business implementation plan ........................................... ............................................................... ............................................ ............................. ....... 48 IV. The Basic Business Plan ......................................... 1. The factory establishment establishment ......................................... ............................................................... ........................................... ...................................... .................48 1.1 Location Evaluation ......................................... ............................................................... ............................................ ............................................ .......................... 48 1.2. The production Technology & Process .................................................... .......................................................................... .......................... 49 1.2.1 Price .......................................... ................................................................ ............................................ ............................................ ............................................ ......................... ...51 1.2.2 The candition of the payment ............................................ .................................................................. ............................................ .......................... 51 1.3. Import of the facilities facilities & equipments ............................................ .................................................................. ................................... ............. 51 1.4. Production process flow ............................................... ..................................................................... ............................................ ................................ .......... 52 2. The Production & Sales.......................................... ................................................................ ........................................... .......................................... .....................53 2.1. Capacity ......................................... ............................................................... ............................................ ............................................ ........................................... .....................53 2.2. Cost Analysis.............................. .................................................... ............................................ ........................................... ........................................... ......................... ...53 2.2.1 Raw materials (main ( main and sub materials).......................................... ................................................................ .............................. ........ 53 2.3. Operation ........................................... ................................................................. ............................................ ........................................... ....................................... ..................58 2.3.1 Organizational Organizational chart...................................... chart............................................................ ........................................... ........................................... ......................... ...58

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Table of Contents I. Market Study ...................................................................................................... 5

1. Country (Azerbaijan) Overview.......................................... ................................................................ ............................................ ............................. ....... 5 1.1 General Information ..................................... ........................................................... ............................................ ............................................ .............................. ........ 5 1.1.2 Geographical data................................ data...................................................... ............................................ ............................................ .................................. ............ 6 1.1.3 Economy ........................................... ................................................................. ............................................ ............................................ ........................................ .................. 6 1.2. The important regulation about foreign investments or JV .......................... ............................................ .................. 8 1.3 The procedure of JV establishment.......................................... ............................................................... ......................................... .................... 10 1.4. Tax System ......................................... ............................................................... ............................................ ............................................ ....................................... ................. 14 1.5. Labor employing circumstance circumstance ............................................ ................................................................. ........................................... .......................... 21 1.6 The Important Business culture to note in advance ................................ ...................................................... .......................... 23 2. The General Status of the market of PP woven bags (PPWB) (P PWB) in Azerbaijan .................25 2.1 The General Status of the market ......................................... ............................................................... ............................................ .......................... 25 2.2 State support for agriculture agriculture (specially grain producing) in Azerbaijan ..................... ..................... 27 2.3 The status of the demand and supplying ..................................................... ......................................................................... .................... 28 2.3.1 Applicable Applicable industrial fields .............................. .................................................... ............................................ .......................................... ....................28 2.3.2. Main suppliers of PP bag............................................ ................................................................. ........................................... ................................ .......... 38 2.3.3 Quality and Prices in the market........................................... ................................................................. .......................................... ....................42 ................................................................. .................................... .............. 45 III Business implementation plan ........................................... ............................................................... ............................................ ............................. ....... 48 IV. The Basic Business Plan ......................................... 1. The factory establishment establishment ......................................... ............................................................... ........................................... ...................................... .................48 1.1 Location Evaluation ......................................... ............................................................... ............................................ ............................................ .......................... 48 1.2. The production Technology & Process .................................................... .......................................................................... .......................... 49 1.2.1 Price .......................................... ................................................................ ............................................ ............................................ ............................................ ......................... ...51 1.2.2 The candition of the payment ............................................ .................................................................. ............................................ .......................... 51 1.3. Import of the facilities facilities & equipments ............................................ .................................................................. ................................... ............. 51 1.4. Production process flow ............................................... ..................................................................... ............................................ ................................ .......... 52 2. The Production & Sales.......................................... ................................................................ ........................................... .......................................... .....................53 2.1. Capacity ......................................... ............................................................... ............................................ ............................................ ........................................... .....................53 2.2. Cost Analysis.............................. .................................................... ............................................ ........................................... ........................................... ......................... ...53 2.2.1 Raw materials (main ( main and sub materials).......................................... ................................................................ .............................. ........ 53 2.3. Operation ........................................... ................................................................. ............................................ ........................................... ....................................... ..................58 2.3.1 Organizational Organizational chart...................................... chart............................................................ ........................................... ........................................... ......................... ...58

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2.3.2 Staff of employees......................................... ............................................................... ............................................ ........................................... ........................ ... 59 2.3.3 Cost of Products......................................... ............................................................... ............................................ ............................................ ............................ ...... 61 2.4. Sales & Marketing...................... Marketing ............................................ ............................................ ............................................ ............................................ .......................... 62 2.4.1 Annual market share forecasting & selling quantities………………………… quantities……………………………….77 …….77 2.4.2 Target market .................................. ........................................................ ............................................ ............................................ ....................................... ................. 62 2.4.3 Size of the market ..................................................... .......................................................................... ........................................... .................................... .............. 63 2.4.4 Market positioning ...................................................... ............................................................................ ............................................ ................................ .......... 63 2.4.5 Market segmentation ........................................... ................................................................. ............................................ ....................................... .................64 2. 4.5.1 Product .................................................... .......................................................................... ............................................ ............................................ ............................ ...... 64 2.4.5.2 Pricing strategy ........................................... ................................................................. ........................................... ........................................... ......................... ... 65 2.4.5.2 The promotion.............................. promotion.................................................... ............................................ ............................................ ....................................... ................. 68 ................................................................. ............................................ ......................70 V. Economic Feasibility Study ........................................... 1. Bases and Assumptions ......................................... ............................................................... ............................................ .......................................... ....................70 2. Total investment costs............................................ .................................................................. ........................................... .......................................... .....................74 ............................................................................. ............................................ ....................................... .................76 3. Income statement....................................................... 3.1 Income Statement, Conservative view ........................................... ................................................................. ................................... ............. 76 3.2 Net Income Statement, Negative view ........................................... ................................................................. ................................... ............. 77 3.3 Net Income Statement S tatement , Optimistic Optimistic view .......................................................... .......................................................................... ................ 78 4. Balance Sheet ....................................................... ............................................................................. ........................................... ........................................... ......................... ... 79 4.1 Projected Balance sheet, concervative view .......................................... ................................................................ ............................ ...... 79 4.2 Projected Balance Sheet, negative view.......................................... ................................................................ ................................... ............. 80 4.3 Projected Balance Sheet, optimistic view ............................................... ..................................................................... ........................... ..... 81 5. Cash Flow of the project ........................................ .............................................................. ........................................... .......................................... .....................82 5.1 Cash Flow For Financial Planning –Concervative view ................................ ................................................. .................82 5.2 Cash flow for financial planning-Negative view............................................ ............................................................. .................99 5.3 Cash flow for financial planning, Optimistic view…………………………….……….99 6. Payback period of the project ......................................................... .............................................................................. ...................................... .................86 7. IRR on total capital invested ............................................... ..................................................................... ............................................ ............................ ...... 88 8. NPV on total capital invested .................................. ........................................................ ............................................ ....................................... .................90 .................................................................. ............................................ ................................. ........... 92 VI. Qualitative Analysis ............................................ 1. SWOT Analysis of this project ......................................... ............................................................... ............................................ ............................... ......... 92 2. Five forces Analysis (Competitiveness (Competitiveness Analysis) ....................... ............................................. ....................................... .................92 3. Other Risk Assessment .......................................... ................................................................ ........................................... .......................................... .....................94

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VII Further step study.................................................................................113

1. Next step after the mature of PP woven bag....................................................................113 2. Neighbor industrial fields to PP bag business..................................................................113 3. What is necessary for being ready for the next biz and its timing................................113 The final results of F/S……………………………………………………….114

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I. Market Study 1. Country (Azerbaijan) Overview 1.1 General Information

The country is well placed on the south eastern border of Europe on the shores of the hydrocarbon resources rich Caspian Sea. It has direct access to the extensive and speedily emerging markets of the Central Asian states, Caucasus as well as Middle East. Azerbaijan declared the policy of openness for international business. It has an excellent record of co-operation with private international businesses, in particular, with oil & gas corporations. The country by now is well integrated in the international cooperation system through participation in various international organizations such as Council of Europe, OSCE, Commonwealth of Independent States, GUAM (Georgia, Ukraine, Azerbaijan and Moldova alliance), Black Sea Economic Cooperation, Organization of Islamic Conference as well as a system of multilateral and bilateral treaties on security and economic affairs. Azerbaijan has stakes and is actively engaged with the European Bank for Reconstruction and Development, Asian Development Bank, World Bank, International Monetary Fund, Islamic Development Bank, Black Sea Trade & Development Bank etc. all of which have running projects portfolios in the country. Table 1General Information about the country Establishment date 28 May 1918 Independence Day 18 October 1991 Date of joining to the organization of 30 January 1992 Security and Cooperation in Europe Date of joining to the United Nations 2 March 1992 Date of joining to GIS 19 September 1995 Date of joining to Council of Europe 17 January 2001 Territory, thsd. square km 86.6 Number of population, thsd. person (at 8730.3 the beginning of 2009 year) Population density, per km2 100.8 Capital Baku Official language azerbaijanian Monetary unit manat Political system

Azerbaijan has a republican form of government. The three branches of power include: Executive headed by the President (5 year term);

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Legislative: unicameral National Assembly (Milli Majlis) with 125 deputies (5 year term); Judiciary topped by the Supreme Court of the Republic. The system of "checks and balances" includes the Constitutional Court and the Constitution with a number of guaranteed rights and freedoms for the people of Azerbaijan. The country lives a very dynamic political life. A number of parties and politicians compete for Presidency, Parliament constituencies and municipalities. A well developed electronic and paper media community exists. The foreign policy of Azerbaijan is complimentary and is directed at establishment of peaceful and mutually beneficial cooperation with all international partners. One of the major foreign priorities of the republic is integration into common European space. Relations with the former USSR (now CIS) countries are also important, first of all due to the vitality of the economic cooperation with them and need for traditional trade relations. 1.1.2 Geographical data

The country is the largest and the fastest growing economy in the South Caucasus. It is the best transport link that connects South Eastern Europe with the vast regions of growing importance which are the Central Asia and the Caspian Sea. Increasing number of professional shipping companies is engaged in transportation of goods by this link during the last decade. Climate: Azerbaijan's climate varies from an arid subtropical and humid subtropical to

a mountainous tundra climate. Average annual precipitation is between 200 and 300 mm (8 to 12 inches) in the lowlands and 300 to 900 mm (12 to 35.5 inches) in the highlands, although precipitation is distributed unevenly throughout the year. On the southern slopes of the Greater Caucasus average annual precipitation ranges between 1,000 and 1,300 mm (39 to 51 inches). Average temperature ranges in the lowlands between 25 and 27 degrees C (77 and 80 F) in July and 0 to 3 degrees C (32 to 37 degrees F) in January and between minus 3 to minus 6 degrees C (27 to 21 degrees F) in January in the highlands. 1.1.3 Economy Azerbaijan is the fastest growing economy globally. Following sharp decline in early 90-s of the last century Azerbaijan achieved stable and rapid growth for 10 consecutive years starting from 1995 .

Now the country is one of the most rapidly recovering economies in the world. Almost all major economic indicators point out growth pattern. Main socio-economic indicators for the last four years are shown below: Table 2. Main socio-economic indicators, million AZN

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Indicators

2005

2006

2007

2008

Number of population (end of the year), thsd. person Gross domestic product Industrial products Investments Agricultural products Freight turnover in transport sector, mln.ton-km Retail trade turnover Paid services for population Volume of foreign trade, mln. US dollars of which: Export Import Revenue of state budget Expenditure of state budget Income of population Income per capita, manat Average nominal monthly wage, manat Number of registered unemployed, person Consumer goods price and tariff indices of services: in comparison with the previous year, % Wholesale index of industrial production (average annual, in comparison with to the previous year, percent)

8436.4

8532.7

8629.9

8730.3

12522.5 9290.5 5769.9 1752.1 26534

18746.2 15509.4 6234.5 1991.5 43294

28360.5 22441.4 7471.2 2793.0 78007

38005.7 28108 9081.4 3324.8 88607

4622.2 960.7 8558.4

5760.3 1400.7 11638.9

7591.4 2348.3 11771.7

10876.0 3393.0 54919.7

4347.2 4211.2 2055.2 2140.7 8063.6 974.9 123.6

6372.2 5266.7 3868.8 3790.1 10198.5 1219.2 149.0

6058.2 5713.5 6006.6 6086.2 14558.2 1720.6 215.8

47756.2 7163.5 10762.7 10680.9 20058.2 2343.2 268.0

56343

53862

50651

44481

109.6

108.3

116.7

120.8

118.9

117.7

108.0

111.6

The GDP annual surplus in 2004 was 10.2%, a record growth for the year was in 2006 and equal to 31.2% , in 2007 was 33,5%. GDP in 2008 year is shown below at the chart:

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Chart 1. Gross Domestic Product, million AZN

1.2. The important regulation about foreign investments or JV

Regulation of the foreign investments is provided by the law of the Azerbaijan Republic about “Protection of Foreign Investments”. The Law determines legal and economic principles of realisation of foreign investments at the territory of the Azerbaijan Republic. The Law is aimed to attraction and efficient use of foreign material and financial resources in the economy, modern foreign equipment and technology and managerial experience and guarantees protection of rights of foreign investors. The following persons and entities might be foreign investors in the Azerbaijan Republic by the law: a) foreign legal entities b) foreign citizens, stateless citizens and citizens of the Azerbaijan Republic permane ntly living abroad, if they have been registered as participants of economic activity in the country of their citizenship or permanent residency c) foreign states d) international organisations. Foreign investments might be represented by any kind of property and proprietary rights, including right for results of intellectual activity and other immaterial rights being contributed by foreign investors to the objects of business activity and other kinds of activity with the objective of obtaining the profits. Foreign investors might make investments at the territory of the Azerbaijan Republic by the way of: a) participation in enterprises, organisations established together with legal entities a nd citizens of Azerbaijan Republic on the sharing basis; b) establishment of enterprises completely belonging to foreign investors;

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c) purchase of enterprises, proprietary complexes, buildings, structures, shares in ent

erprises, other shares, bonds, securities and also other property which according t o legislation of the Azerbaijan Republic might belong to foreign investors; d) acquisition of rights for use of land and other natural resources and also other pro prietary rights; e) conclusion of agreements with legal entities and citizens of the Azerbaijan Republi c providing for other forms of realisation of foreign investments. Legal regime of foreign investments and also activity of foreign investors in connection

with their implementation might not be more favorable than regime for property, proprietary rights and also investing activity of legal entities, citizens of the Azerbaijan Republic except cases envisaged by the present Law. Additional tax privileges and other privileges might be established for foreign investments in the priority spheres of economy of the Azerbaijan Republic and also on specific territories thereof. Enterprises with foreign investments might exercise any kinds of activity if they have not been prohibited by legislative acts of the Azerbaijan Republic. Some kinds of activity (following regulations of the Cabinet of Ministers of the Azerbaijan Republic) might be accomplished by the enterprises with foreign investmentsonly after obtaining special permit (license). Foreign investments on the territory of the Azerbaijan Republic enjoy full legal protection that is guaranteed by the law “Protection of Foreign Investments”, other legislative acts and international agreements of the Azerbaijan Republic. Enterprises with foreign investments are established in the form of stock companies, limited liability companies and other economic companies and enterprises and also in any other forms not contradicting the legislation of the Azerbaijan Republic. The following companies might be established and act on the territory of the Azerbaijan Republic: enterprises with participation of foreign investors (joint ventures); enterprises being full property of foreign investors (foreign companies); representations (bureau, offices, agencies) of foreign legal entities. Enterprises fully belonging to foreign investors and joint ventures with more than 30% of foreign investments in the partnership fund have the right to export products (works, services) without licenses. Enterprises with foreign investments have the right to import products (works, services) for their own economic activity. Procedure of ascribing products (works, services) to the products of self-activity of the enterprises with foreign investments is defined by the Cabinet of Ministers of the Azerbaijan Republic. Profits obtained by enterprises with foreign investments as a result of export of their products remain at their disposal. Foreign investments are protected by certain guarantees provided by the government, including: 

Guarantee againist deterioration of legislation – the general rule is that legislatio

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n in force at time of making an investment continues to apply for subsequent 10 years. 

Guarantee againist nationalization and requisition –foreign investments are not s ubject to nationalization (except in caases of harm to population and state interes t) and requisition (except in cases of natural disaster, epidemics, accidents, emer gencies). Foreign investors are guaranteed immediate, adequate and effective co mpensation in case of nationalization and requisition. Compensation should be c ommensurate to the amount of the investment at time of nationalization or requi sition, payable in foreign currency and may be freely transferred abroad;



Guarantee of compensation of damages – foreign investors are entitled to compe nsation of damages, including lost profits, incurred as a result of unlawful acts o f state authorities;



Guarantee of repatriation of profits – foreign investors are entitled to repatriate p rofits derived from foreign investments subject to payment of applicable taxes an d duties.

1.3 The procedure of JV establishment

According to the Law on Protection of Foreign Investments, foreign investors may establish the following legal entities: 1. An enterprise with participation of foreign investors on a shared basis (joint ventures); 2. A wholly foreign-owned enterprise (foreign enterprises); 3. A representative office. This table summarizes the procedures and costs associated with setting up joint ventures in Azerbaijan. Registration Requirements: Table 3. Procedures for registration No: Procedure Time to complete 1. Obtain a confirmation of the legal 1 day

2.

3.

address of the company from the proposed lessor Deposit the charter capital in a bank and obtain a receipt; pay the state registration fee and get a receipt File documents with the company registrar at the One Stop shop Taxes, register for VAT purposes

Cost to complete

no charge

1 day

AZN 11 + AZN 20

5 days

no charge paid in Procedure 3 (AZN 11)

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4. 5. 6.

Obtain a company seal Open a permanent bank account 1 day Obtain workbooks for employees from the Ministry of Labor

1 day 1 day

AZN 22 AZN 30

7 days

nominal

Table 4. Explanation of procedures.

Procedure 1

Obtain a confirmation of the legal address of the company from the proposed lessor

Time to complete: Cost to complete: Comment:

1 day no charge The company must obtain a lease agreement to confirm the location of its permanent governing body. Usually, a guarantee letter from the proposed lesser, along with anotarized copy of the ownership certificate for the premises, is acceptable as evidence of the JV's legal address.

Procedure 2

Deposit the charter capital in a bank and obtain a receipt; pay the state registration fee and get a receipt


1 day AZN 11 + AZN 20 Most banks charge a fee for opening an account. A state fee is paid to the special central treasury account maintained at the National Bank of Azerbaijan. The charter capital is usually paid in cash, and the payment slip showing acceptance by the Ministry of Justice is obtained as valid proof. The state fee can also be paid by bank transfer to the special account of the Ministry of Justice. The bank account is open, in escrow, on the submission of a copy of the charter to the bank and the transfer (or deposit) of 100% of the charter capital. The payment of charter capital may also be evidenced by an extract from the bank account, which would be acceptable to the Ministry of Justice as evidence of payment of the charter capital. The bank issues a letter addressed to the Ministry of Justice, confirming payment of the charter capital. The bank account cannot be used for other purposes until tax authority consent is received after registration. The registration fee is AZN 11.

Procedure 3

File documents with the company registrar at the One Stop shop Taxes, register for VAT purposes

Time to complete: Cost to complete:

5 days no charge paid in Procedure 3 (AZN 11)

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Comment:

100% of registrations are carried out through one stop shop.

Procedure 4

Obtain a company seal


1 day AZN 22 No state duty is charged. The cost of the stamp depends on the price of the private contractor and varies between AZN 4 and AZN 40. Various companies produce the seals, and the law does not restrict a company to any particular producer. Open a permanent bank account 1 day AZN 30 Opening a permanent bank account requires the issuance a special authorization form (the notification duplicate) by the local tax authority (in the jurisdiction where the company is registered) and the local department of the Social Security Fund. The notification duplicate is addressed to the bank in which the company’s account is to be opened. The company must open its permanent bank account within 10 days after the notification duplicate is issued. Each bank account requires two notification duplicates: one from the tax office and one from the Social Protection Fund. Generally, companies open two bank accounts, one in U.S. dollars and one in Azeri Manats. Four notification duplicates are thus required (one notification duplicate from each agency for each bank account). The bank must fill in the required information and return the portions of the notification duplicates to the Tax Office and to the local office of the State Social Protection Fund.

Procedure 5 Time to complete: Cost to complete: Comment:

Procedure 6

Obtain workbooks for employees from the Ministry of Labor


7 days nominal -

To register foreign-invested commercial legal persons, (procedure 3) application for State Registration of Commercial Legal Person shall be submitted to a related tax body. The application is signed by the founder(s) and notary certified. The following are attached to the application:  

Charter approved by the founder(s) of the entity to become a legal person (2 copies); the founder’s (founders’) resolution signed to establish the entity to become a legal person and approve Charter;

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Addendum to Application for State Registration of Commercial Legal Person on the founders’ details; If established by natural and legal persons, two forms are separately filled in. If passport details of the natural-person founder are not confirmed by the Ministry of Internal Affairs’ database related, attaching IDcopies to the application may be required;  if the founder is a foreign legal person, the notary-certified copy of documents to confirm the foreign registration of this legal person: a certificate of registration (registry extract) or Charter. In this case, the document should be properly legalized by the Republic of Azerbaijan's diplomatic mission to the legal person's country or by another foreign mission representing the Republic of Azerbaijan in that country (if not available, by the Consulate Office of the Republic of Azerbaijan’s Ministry for Foreign Affairs as an exceptional case);  if the founder is a foreign or no-citizenship person, a properly legalized document to confirm his/her economic activity in any country;  if the supervisory board has been elected by the submission date of the state registration application to the tax body, data on its members are provided with the according addendum of Application for State Registration of Commercial Legal Person. If the members’ passport details are not confirmed by the Ministry of Internal Affairs’ database related, attaching ID-copies to the application may be required;  a copy of the resolution by the founders to appoint a legal representative or chief, authorized for executive and administrative powers (if the representative’s passport details are not confirmed by the Ministry of Internal Affairs’ database related, attaching ID-copies to the application may be required);  the document to confirm the address of the entity to be a legal person;  a document to confirm paying the charter capital in case of establishing a limited liability company, joint-stock company, bank or an insurance company (bank receipt, real-estate mortgage, etc.);  if the entity to be a legal person is going to act under the special tax regime, the related data is provided with the according addendum to Application for State Registration of Commercial Legal Person;  if signed by the founder’s (founders’) proper agent, the letter of attorney is provided with the application.  two copies of the founding contract. 

It is prohibited to require other documents not stipulated by the legislation.

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1.4. Tax System

There are currently three different types of tax regimes that are applicable in Azerbaijan: the statuary tax regime, the Production sharing agreement (PSA) and Host Government Agreement (HGA) tax regime (for Baku-Tibilisi-Ceyhan and South Caspian Pipelines). The statuary tax regime applies to activities of legal entities (both local and foreign) outside of PSAs and HGA. Statuary tax regime

Azerbaijan introduced the Tax Code, effective from 1 January 2001, with the intention of improving Azerbaijan’s tax legislation. A foreign legal entity engaging activity in Azerbaijan through a “permanent establishment” is obliged to register separately with the tax authorities, in irrespective of whether its activity will be subject to profit taxation or not. Tax registration of a Representative Office (RO) or Branch office (BO) should take place within one month of the commencement of activity. Termination of the RO’s and BO’s activities should be reported to the authorities one month before the cessation of operations. The major taxes applicable under the statuary tax regime are outlined below. Corporate taxation Profit tax

With effect from 1 January 2001, the Tax Code applies the same tax rate and principles of taxation to all types of legal entities with a registered presence in Azerbaijan Republic. Payers of profit tax are all legal entities (including foreign legal entities) engaged in business activity in Azerbaijan. Profit tax is computed on the basis of an enterprise’s taxable profit. Taxable profit is generally determined on the basis of gross realization (receipts) less deductible expenses defined as any expenses related to generation of profits. The tax rate for the tax year 2009 on an enterprise’s profit is 22 percent. (from 2010 is 20 percent.) Profit tax liabilities of an enterprise should be calculated and paid quarterly in advance. In addition to profit tax paid by the permanent establishment of the non-resident, each amount transferred from net profit of the permanent establishment shall be taxed at the rate of 10%. Dividend Withholding Tax

Dividend withholding tax of 10% applies to both domestic and foreign shareholders. Tax is withheld in the currency in which the dividend is paid. Double taxation Treaties (“DTT”) may reduce the rate at which dividend tax applies. (See the section below for brief information about DTTs in Azerbaijan)

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Other Withholding Taxes

Foreign legal entities with no permanent presence (permanent establishment) in Azerbaijan are subject to withholding tax on income derived from sources in Azerbaijan at the following rates: 10% -Interest 14% - Rent and Royalty 6% - Freight Income 6% - Telecommunication Telecommunication services 4% - Financial leasing and insurance payments 10% - Other income. Value Added Tax

In general, VAT is charged at a rate of 18% of each taxable operation and the value of taxable import. A non-resident person who performs work, or provides a service, without being registered for VAT purposes and who is subject to taxation (reverse charge VAT) should be considered a tax payer on such work or service. The amount of tax shall be determined by applying the tax rate (18%) to the amount payable to a non-resident (without VAT) The subject of VAT taxation is the turnover from sale of goods and services rendered in the territory of the Azerbaijan Republic. VAT is also applied to goods imported into Azerbaijan at Customs. In general, VAT paid on purchases (i.e., input VAT) is recoverable against output VAT which is charged on the sale of goods manufactured or the provision of works and services in Azerbaijan. Mining Tax

Legal and physical persons involved in the recovery of minerals in Azerbaijan are obliged to pay the Mining Tax on natural resources extracted in Azerbaijan. The rates r ates of tax are determined depending on the type of the mineral and vary from 3% up to 26% on the wholesale price of the extracted minerals. Excise Tax

Excise goods produced in or imported into the Azerbaijan Respublic are subject to excise tax, except for goods that are exempt from tax. The following goods are considered excisable excisable goods:   

drinkable spirit, beer and all types of alcohol beverages; beverages; tobacco products; petroleum products.

Customs Duties

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Custom duties rates to be levied on the value of the imported commodities vary from 0,5% up to 15% of the value of the goods imported depending on the type of the goods. Property tax

Companies operating in Azerbaijan are required to pay property tax at the rate of 1% of the annual average residual value of fixed f ixed assets. Land Taxes

Tax on land is calculated as a fixed payment irrespective of the results of the economic activity of owners and users of land. Physical persons and entities who own or use the land plots in the territory of the Azerbaijan Republic shall be the payers of land tax. Road Tax

Legal entities and individuals of foreign states pay this tax when entering into the territory of the Azerbaijan Republic. Taxes are assessed on cars, buses and trucks depending on seat number and days spent in Azerbaijan. Simplified Tax

This tax is intended to ease tax burden for small size businesses and is in lieu of general profit tax. Simplified tax is charged at the following rates on the gross revenue of the taxpayers: 

4% for taxpayers operating in Baku



2% for taxpayers operating in other regions r egions of Azerbaijan

In order to qualify for this tax, the total revenue should not exceed 25000 manat (from 1 January 2010 should not exceed 150 000) in a three month period. The payers of the simplified tax are also exempt from VAT, profits tax and property tax. Simplified tax is payable on a quarterly basis. Employment Taxes and Contributions Income Tax

Income tax in the Azerbaijan is charged at a series of progressive rates ranging from 14% to 35% of gross income. Social Insurance Fund

Both employers and employees make payments to this fund. The employer is required to pay an amount equal to 22% of an employee’s gross salary to the Social Insurance Fund. Employees are required to pay 3% of their gross salary to the Social Insurance Fund (this is withheld from their salary by the employer). All payroll taxes and withholding should be paid to the relevant State Budget bank accounts on the same day that employees are paid their net (take home) salaries.

16


Foreign citizens are generally not subject to social insurance contributions unless there is a reciprocal agreement between Azerbaijan and country of citizen of the foreigner. Double Tax Treaties

Azerbaijan is continuing to widen the treaty network with other countries. Currently, there are over 31 treaties on avoidance of double taxation signed between Azerbaijan and foreign countries: Table 5. Double taxation treaties No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

State

Date of signature

Date of application

Georgia Ukraine United Kingdom Norway Russian Federation Uzbekistan Turkey Moldova Kazakhstan Austria Belarus Germany Lithuania Romania Poland Chine France Canada Latvia Belgium Czech Republic Finland Switzerland Tajikistan Qatar Bulgaria Estonia Korea Hungary Luxembourg United Arab Emirates

18 Feb, 1997 30 Jul, 1999 23 Feb, 1994 24 Apr, 1996 03 Jul, 1997 27 May, 1996 09 Feb, 1994 27 Nov, 1997 16 Sep, 1996 04 Jul, 2000 08 Aug, 2001 25 Aug, 2004 02 Apr, 2004 29 Oct, 2002 26 Aug, 1997 17 Mart, 2005 20 Dec, 2001 23 Jan, 2006 03 Oct, 2005 18 May, 2004 24 Nov, 2005 29 Sep, 2005 23 Feb, 2006 13 Aug, 2007 28 Aug, 2007 12 Nov, 2007 30 Oct, 2007 18 May, 2008 18 Feb, 2008 18 June, 2006 20 Dec, 2006

01 Jan, 1998 01 Jan, 2001 18 Oct, 1991 01 Jan, 1997 01 Jan, 1999 01 Jan, 1997 01 Jan, 1998 01 Jan, 2000 01 Jan, 1998 01 Jan, 2002 01 Jan, 2003 01 Jan, 2006 01 Jan, 2005 01 Jan, 2005 01 Jan, 2006 01 Jan, 2006 01 Jan, 2006 01 Jan, 2007 01 Jan, 2007 01 Jan, 2007 01 Jan, 2007 01 Jan, 2007 01 Jan, 2008 01 Jan, 2009 01 Jan, 2009 01 Jan, 2009 01 Jan, 2009 01 Jan, 2009 01 Jan, 2009 01 Jan, 2010 01 Jan, 2008

Paying taxes and terms to provide tax returns are shown at the table below:

17


Table 6. Paying taxes and terms to provide tax returns

Tax name

Deadline to pay Tax Tax name and Provide Tax Return Natural persons' 15.04, 15.07, 15.10 6. Tax on Land: income tax: and 15.1. for legal persons (1) – current payment 31.03 - providing 1 – year's final calculations payment and providing tax returns

Deadline to pay Tax and Provide Tax Return 15.5. 15.08 and 15.11

For legal and natural persons - year’s final payments:

Profit tax: 15.04, 15.07, 15.10 (2) – current payments and 15.01

31.03 2 – year's final payment and providing tax return

3. VAT – payment and providing the tax return

20.01 – 12.

4. Excise tax - payment and providing the tax

20.01 – 12.

7. Road tax for Custom bodies foreign vehicles - road-tax foreign tax payment vehicles when they enter the Republic of For legal persons Azerbaijan and owning or using a transfer the vehicle in the payments into the territory of the national budget Republic of Azerbaijan Prior to March 31 - providing tax 2009 for 2008 returns and paying Prior to March 31 the tax 2010 for 2009 For natural persons During technical owning or using a examination of the vehicle in the vehicles territory of the A vehicle is not Republic of registered, reAzerbaijan registered or - paying the tax examined without the document to confirm the road-tax payment provided. 8. Royalty (mining 20.01 – 12. tax) – payment and providing the tax return 9. Simplified tax 20.04, 20.07, 20.10 - payment and and 20.01 providing the tax 15.03

18


return

Property tax: 15.02, 15.05, 15.08 for legal persons and 15.11 (5) – current payments

return (9). Providing Report Form I KM 10.Taxes charged at the source of payment

31.03 5. For legal persons - year’s final payment and providing tax returns For natural persons - year’s final payments

15.08 and 15.11

For legal persons and individual entrepreneurs - payment and providing the tax return

11. State duty

The income tax is calculated from natural persons' monthly hired-labor income and transferred to the national budget prior to the next month's 20th day. Non-government pensions and other payments (except rent-charges paid for resident entities or non-resident permanent representative offices in the Republic of Azerbaijan and royalties) are taxed; the tax shall be paid to the national budget prior to the 20th day of the next month after the income quarter. Returns on taxes charged at the source of payment are provided to the tax body prior to the 20th day of the next month after the quarter, or 20.04, 20.07, 20.10 and 20.01. The notarial state duty is accepted by a notary officer and transferred to the

19


national budget during two banking days; the state duty for consul service by the Republic of Azerbaijan's diplomatic missions abroad is transferred to the national budget during a month; other state duties are transferred to the national budget during a banking day; all payments are reported prior to the 20th day of the account quarter, or prior to 20.04, 20.07, 20.10 and 20.01. Table 7 Penalties for past due tax payments and tax returns Financial sanction and interest rates

Administrative fine

1. According to Article 57.1 of Tax Code, 1. According to Article 247 of Code for

the financial sanction in the amount of AZN 40 is applied against a taxpayer by the resolution of the tax body's chief or deputy chief in case of tax returns or no business statements being past due with no ground

Administrative Fines, officials and legal persons are charged in the amount, respectively, of 25-30 and 40-60 nominal monetary units for tax returns and other mandatory-payment reports being past due.

2. According to Article 58.1 of Tax Code, if 2. According to Article 248 of Code for

the tax charge (including taxes at the source of income) is reported lower than it should be or if the tax amount to pay is not reported and not paid, the taxpayer shall pay a financial sanction as much as 50% of the lower-reported or concealed tax amount (except VAT calculated as a result of cameral tax inspection)

Administrative Fines, officials charging state duties wrongly or not transferring them to the national budget in time and fully are fined 70-90 nominal monetary units

20


3. With reference to Articles 59.1 and 59.2

of Tax Code, if the tax or current tax payment is not paid in time stipulated by Tax Code, the taxpayer or tax agent is charged 0.1% of the amount for every day past due. The interest rate is valid with reference to all the past period related to current tax payments, but not longer than for one year. 1.5. Labor employing circumstance

Labor relations are covered by the Labor Code adopted in 1999 that codified the legislative acts adopted in early years of Azerbaijan’s independence and number of lower tier normative legal acts that expand certain provisions of the Labor Code. A standard working week is 40 hours. Overtimes and work during days-off (which are Saturdays, Sundays, public holidays and a mourning day) are in general compensated at the double daily rates. Employment relations are established by virtue of execution of an employment contract, which is made without a fixed term in most cases. An employer is under a duty to give a termination notice. The general term of such notice is 2 months in case of redundancy. However, certain exceptions to this rule are available. (e.g.,in case of gross violation of labor duties.). An employee can terminate a contract at any time upon giving a 1 month notice. Termination of employment with certain categories of employees (e.g., expecting women, women with children below 3 years of age) is prohibited. In cases of termination of employment due to redundancy or liquidation of an enterprise the employer shall pay to the employee a severance payment, which may total to up to three months of employee’s salary. It is strongly recommended that employment and termination procedures established in the law be strictly followed as in case of any employer-employee disputes the courts usually tend to favor employee’s position. An average monthly nominal wages and salaries during the last five years are shown below at the table*: Table 8. Monthly nominal wages and salaries, in AZN January February March April May June

2003

2004

2005

2006

2007

72.2 73.4 74.7 75.6 75.9 76.4

87.5 87.7 88.1 89.2 90.3 92.1

106.4 106.8 110.6 115.6 116.7 117.7

127.2 143.7 151.5 152.2 152.4 153.5

175.1 192.2 200.6 207.3 211.0 211.8

21


76.7 95.2 120.3 161.9 212.4 77.2 96.4 121.7 162.0 217.9 77.5 102.3 123.7 169.8 218.0 77.6 102.6 124.0 169.9 222.4 79.0 103.1 124.6 179.8 225.1 83.2 106.4 126.6 180.2 233.2 *The information is provided by the State Statistical Committee of the Republic of Azerbaijan Republic. Data for 2008 year is not available at this stage of research. July August September October November December

Average monthly wages of employees by kinds of economic activity in industry are shown below at the table: Table 9. Average monthly wages of employees by kind of economic activity, in AZN Industrial, total Mining industry Manufacturing industry

2003

2004

2005

2006

2007

137.1 290.3 88.9

187.0 451.3 98.3

213.2 505.2 115.3

260.9 633.7 140.5

344.8 845.5 190.5

50.6

58.3

71.1

85.2

131.3

35.5 38.3

39.3 40.7

58.4 54.0

68.1 60.7

100.5 124.5

19.7

24.4

51.1

79.3

146.6

40.8

52.4

79.8

114.6

103.1

126.4

159.6

234.8

340.5

80.3 29.7

100.1 53.2

118.3 59.8

155.4 79.3

180.0 127.6

139.2

221.9

222.1

265.9

from it: manufacture of food products, including beverage and tobacco textiles and seving industry manufacture of leather, leather products and footwear manufacture of food and woodwork pulp and paper industry; publishing manufacture refined petroleum products chemical industry manufacture rubber and plastics products manufacture of other non-metallic mineral products metallurgy industry and fabricated metal products manufacture of machinery and equipment manufacture of electrical, optical and electronic equipments manufacture of transport means and equipments other sectors of manufacturing

114.6 171.5

120.5 169.8

66.8

123.1 183.9

68.7

79.4

79.4

121.0

178.3

45.1

57.1

76.0

93.5

178.3

160.6

156.6

208.4

240.0

282.6

47.2

45.8

58.0

65.0

107.0

22


industry Production and distribution of 73.2 electricity, gas and water

87.7

121.7

146.7

210.0

Employees right is protected by the law of the Azerbaijan Republic About labor protection. 1.6 The Important Business culture to note in advance Decree of the President of the Azerbaijan Republic

In November 11, 2008 President of Azerbaijan Republic issued decree on application of the «single window» principle during the inspection of goods and transport means moved across the pass points at the state border of the Azerbaijan Republic in. In order to ensure the implementation of Presidential Decree, the Commission has been established within State Customs Committee (SCC) according to SCC Chairman’s decision dated November 18, 2008. The Commission has been charged with the following functions: 

harmonization of the existing legislation;



organization of veterinary, phyto-sanitary and sanitary control measures on goods moved through state border checkpoints within SCC border customs bodies, and provision of necessary equipments, technical means and other facilities, as well as solution of all issues related to the issuance of “Permission” forms for vehicles used in international road transportations;



establishment of regional offices of SCC Central Laboratory and setting up local network for the purposes of data exchange between Laboratory and border customs bodies, the Ministry of Health and the Ministry of Agriculture;



elaboration of technology for the implementation of “Single Window” principle in customs checkpoints at state borders.

It is planned to complete all works concerning “single window” at the beginning of the next year. Competition

Azerbaijan regulates competition policy with a system comprizing various legislative texts. The major laws dealing with competition issues are: the Law on Antimonopoly Activity no. 526 of 1993 which was amended by Law 381-IGD of October 10, 1997, hereby analysed; the law on Natural Monopolies No 590-IG of December 15, 1998, published in the “Azerbaijan” newspaper on 19 March, 1999; the Law on Unfair

23


Competition No 62.Law No. 1049 June 2, 1995; and the Law on Protection of Consumer Rights. Respective body of the executive power implementing state control on prevention of economic subjects’ abuses of key positions or their actions, restricting competence in the following cases: 

 

amalgamation and association of economic subjects (if it will be resulted in establishment of economic subjects, the share of which exceeds 35% at respective commercial market); association and amalgamation of economic subjects, the total value of which assets exceeds 75-ths-fold minimal amount of salary; liquidation (except for cases of liquidation of enterprises according to judgement of court) and division of the enterprises, the total value of assets of which exceeds 50-thsfold minimal amount of salary, and also municipal enterprises (if it will be resulted in establishment of economic subjects, the share of which exceeds 35% at respective commercial market).

President of Azerbaijan issued a decree on Improving Antimonopoly Policy and Protection of Consumers' Rights in June 25, 2009. On the basis of the state services for antimonopoly policy and control on consumer market under the Ministry of Economic Development, it was created a single State Service for Antimonopoly Policy and Protection of Consumers' Rights under the Ministry. The new service will prevent monopoly in the economy and strengthen the combat with unfair competition. Its activity will be also aimed at upgrading the state management in the field of protection of consumers' rights. Now this service is under the establishment process.

24


2. The General Status of the market of PP woven bags (PPWB) in Azerbaijan 2.1 The General Status of the market

The General Status of the market at present has growing tendency. The reason is that Azerbaijan gets huge money from exploitation of natural resources and use financial support of international and foreign financial organizations. The part of this finance directed to develop agricultural industry, industry of construction materials etc. where there are great demand to PP bag. During the last ten years in Azerbaijan, there are great rising trend in the agricultural and industrial production output that requires packaging materials. One of obvious proofs confirming growth of demand for PP bag is the official statistical data which shows that last years observed great growth in GDP in Azerbaijan. This tendency is observed in the output of industry, in agriculture too. During last five years was observed constantly growth in contraction materials industry and contraction industry, but from 2007 is observed delay in growth of these branches of economy because of influence of economic crisis. The main reason of the growth in demand to PP bag business is that, it hasn’t reach to maximum point of PLC and there is no other product that able to substitute PP woven bags (PPWB) in Azerbaijan market. The basic branches of the industry where are applied bags are primary agricultural industry (producing no processed agricultural production), the industry on processing agrarian products, the industry on manufacture of building materials, chemical industry, charcoal industry, construction industry and building repair industry (where use bags for gathering and transportation of old plaster, broken bricks and other waste). Table 10. Applicable industrial fields and their market status # 1. 2.

Industry field

Primary agricultural industry The industry on processing the agricultural production for food 2.1 of which Sugar industry 3. Fodder industry for livestock and poultry 4. Construction materials industry 5. Chemical industry 6. Charcoal industry 7.

Construction and building repair industry

Trend Increases Increases Increases Increases Increases Decreases Decreases Decreases

About the profitableness of this business it is possible to tell that this business undoubtedly profitable. Because the existing companies are unceasing continue

25


production and market researches allows to tell that there are great reserves to increase production. Main branches of industry which requires PP bag are primary agricultural industry, the industry on processing the agricultural production for food, of which sugar industry, fodder industry for livestock and poultry, construction materials industry, chemical industry, charcoal industry and construction and building repair industry. Among them a special place have agricultural industry and close related with them branches as industry on processing the agricultural production for food, also sugar industry and fodder industry. According to the preliminary opinion of experts the demand of chemical industry, charcoal industry and construction and building repair industry is no more than 10 percent of total demand of Azeri industry. First position on PPWB demand in Azerbaijan has primary agricultural industry (producing no processed agricultural production) . Manufacture of agricultural production for direct consumption and for the food-processing industry (for manufacture of a flour, groats, processed nuts, fodder for cattle and poultry, for manufacture of food oils and fats, for manufacture of sugar, etc.) is historically very important branch of Azeri industry. PP bag are in need on all stages of this production process as a packaging material. Collected harvest is necessary to gather in one place and then transport to warehouses for storage or reception point of processor or directly to the retail business for sale to end-users. Main types of agricultural crops in Azerbaijan which required for collecting and transporting are all kind of PPWB is cereals (grain-wheat, barley, oats, corn) and dried pulses (millet, lentil beans, peas and other beans). There some cereal (grain) processing and storage facilities in Azerbaijan. Mainly these facilities consist special grain storages and huge mills. Most of them were built during post Soviet Union period. But there are some new facilities also. Now according to the experts total capacity of all storages in Azerbaijan (which have metallic or concert silos for grain storage) is about 260 thousand tons. In silos grain stored in the loose and no need bags. But for transportation from farmer’s storages to grain processing companies it is necessary PP bags. About 67 percent of cultivated cereal (grain) in Azerbaijan is wheat- from which produced flour for bread-main food of Azeris. Only small part of crops which are cultivated by big agriculture companies transports and storages it in the looses. Small producers of cereal (grain) and dried pulses don’t storage this crops in the loose, they package this with PP bag. Farmers of the regions where is poultry industry companies grow barley for poultry fodder. Supplying system in primary agricultural industry is depends who is buyer and how many he or she needs bag.

26


2.2 State support for agriculture (specially grain producing) in Azerbaijan

There is great growth in production volume of agricultural industry last years in Azerbaijan. Realization of the important projects on exploitation and development of hydro carbonic resources of Azerbaijan is not an ultimate goal, it is only a key for development of all sectors of economy, social and humanitarian development. In this point of view the great value was given to development of an agriculture and it is provided not only growth of volume of primary agricultural production, but also to growth of productivity, quality, reduction of the cost price. The attention was given as to questions to development of capacities for processing a crop, reduction of losses at gathering, transportation, storage and processing. These questions it is considered in a complex with a question of food safety on which creation of the state stocks of the important kinds of the foodstuffs is stipulated. In January, 2007 the President of Azerbaijan Ilham Aliev has signed the decree « About the state support to manufacturers of agricultural production ». Under this decree it was provided the assistance especially to farmers of grain manufacturers. With this purpose in August, 2008 the “State program on reliable maintenance of the population of the Azerbaijan Republic with the foodstuffs in 2008-2015 » has been accepted. The Azerbaijan President, Ilham Aliyev ordered also to create the State Grain Fund of Azerbaijan, as one of measurement of given Program and according to the Law on Grain. The government is in charge of purchasing and importing grain, fulfilling the state orders, etc. The Fund will be a public property run by the Ministry of Emergency Situations. The law on Grain was passed in 2000. The creation of the State Grain Fund was already considered by the Parliament a few years ago. In 2009 State Grain Fund was provided by necessary financial means and it began activity to purchase standard high quality wheat from grain producers. Because Ministry of Emergency Situations not finished yet construction special silo storages for this grain was decided that this year grain will stored on private silos. Also large-scale work directed to stimulation of manufacture of agricultural production of food assignment began. For performance of requirements of this decree the Cabinet of Ministers has executed a number of measures. For example, the document providing payment of indemnifications for used at cultivation of a crop of fuel and motor oils has been accepted. Also It was provided sale by "Agroleasing" JSS to farmers raising agricultural production of mineral fertilizers for reduced prices. In 13 November, 2007 was accepted other decree of Cabinet of Ministers “On additional measurement for increasing of financial interests of wheat producers and stimulation of wheat producers in Republic of Azerbaijan”. According of this decree to the farmers and other producers for each hectare field sown with wheat grain was paid 40 AZN financial aid. With purpose from state budget in 2007 was directed 64.483,4 thousand and in 2008 year 90.196 thousands manats. The resulting in 2007 were sown 863 thousand hectares grain and collected 2.835,9 thousand tons of crops. (Source: Official “Azerbaijan” newspaper. 14 July, 2009).

27


Except this were also other decrees for stimulation agriculture industry in Republic. For example, was accepted special state program for construction huge storages for keeping agricultural products in long term. 2.3 The status of the demand and supplying

2.3.1 Applicable industrial fields Main industrial fields that use PP bag as packaging material are following: Primary agricultural industry

Manufacture of agricultural production for direct consumption and for the food-processing industry (for manufacture of a flour, groats, processed nuts, dodder for cattle and poultry, for manufacture of food oils and fats, for manufacture of sugar, etc.) This included also cultivation of cereals and legumes (wheat, pulse, bean, pea, and lentil) also potatoes, onions, sugar beets, sunflower seeds, various nuts. 



Manufacture of agricultural production for light industry (consumer goods).   

Cotton growing industry. Cotton is one of the strategic products in Azerbaijan. Production of animal products. For use of PPWB is interesting basically manufacture of sheep’s and goat’s a wool. Production of cocoons of a mulberry caterpillar.

Production of cereals and legumes .

Production of mainly wheat and other grains for flour milling, other grains and legumes for food (except flour), fodder for livestock and poultry are growing every year in Azerbaijan. The country carries out the State Program on Food Security. The main purpose of this program is independence of country from import of food grains. In 2008 was produced 2, 835 mln. tons. of grains. Forecast for present year is 3 mln. tons of which 2,2 mln tons is food grain (wheat). In addition, in Azerbaijan grows a large volume of different varieties of pulses, beans, peas, lentils. All the above mentioned products are packaged with PP bag. According the report of Mr. Ismat Abasov, Minister of Agriculture in President’s meeting harvest collection situation for 20th of July, 2009 was collected cereals 2. 557,33 ths. tons on 976.474 ths. hectares. It is 89% of fields. From which of 713.532 hectares are wheat fields. It is 88% of wheat fields. It was collected 1.918.673 tons wheat. (From the report of Minister of Agriculture of the Azerbaijan Republic. July 22, 2009). Minister forecasted that in current year will be collected 3 mln. cereals (Official newspapers give other forecast -2, 960 mln. ton) and of which 2.200 ths. tons are wheat which suitable for flour producing. But according the food security expert only 0,5 mln. tons of this grain is suitable for flour producing.

28


But it does not influence to demand of bags and in any case PP bag are necessary for their packaging. We have take in account that the big and medium grain (a specially wheat) producers sometimes keep grain harvest not packaged but in the loose. This method they use also for transportation from warehouses to the grain processing centers (elevators) and huge mills. According the experts estimation this method reduce demand for bags for grain 20%. In result for 2 mln tons grain bag demand become 48 mln. bag instead of 60 mln. bags. In this case demand for packaging only of this product is about 48 mln. PPWB yearly. Production of vegetable crops

Vegetable harvest production is growing every year in Azerbaijan. Potato and onion are the main part of them. They are stored in stocks and separated, without packaging. But farmers package these products with PP bag when they sale these products to customers. Production of cabbages, food beets, eggplants, carrots and other vegetable products are in growth too. For packaging of vegetables are used other kinds of bags - waved bags from cords, as a grid, made of a polymeric film, etc. But according to experts and to our field supervision not less than 75 percent of a crop of vegetables from total of this crop are packed in PP bag. Also those bags which usually contain 50 kg of a grain at packaging vegetables (for example fresh green vegetables) contain 30-40 kg of the goods that is connected by their smaller densities. Taking into account all these conditions is possible to consider that PP bag demand for this crops is about 24,6 mln PP bag yearly. Demands for packaging only potato crops is about 22 mln. PP bag yearly.

Total for packaging of all kind of above mentioned primary agriculture production it is necessary 106,6 mln. PP bag. If we will take into account that farmers, buyers, and sellers and others who are the consumers of agriculture crops use used bags and according to experts opinion and field research, about 20% of demand covered by used (second hand) bags. In this case real demand for new PP bag is about 85 mln. The breakdown of this demand by crop is shown below table: Table 11. Demand to PP bag, million bag Products

2003

Cereals and dried pulses (Grain etc.)

2057,8

2158,2

2126,7

2078,9

2004,4

Potato Other vegetables Sugar beets Sunflower seed

769 1046,3 128,9 18,3 4,7 99,6

930,4 1030,2 56,8 14,3 6,5 135,7

1083,1 1046,3 36,8 16,1 7,1 196,6

999,3 1076,2 167,2 15,9 4,8 130,1

1037,3 1227,3 141,9 13,4 2,9 100,1 36

Tobacco Cotton Nuts (walnut, Chestnut)

2004

2005

2006

2007

2008

2498,3 1077,1 1228,3 190,7 16,5 2,5 55,4 38

2009 Forecast

Current demand to PP bag

3000

38,4

1100 1230 200 17 2,5 50 40

17,6 19,68 3,2 0,4 0,16 4 0,64

29

PP Woven Bag Production Business plan Wool Total

12,1

12,3

13,1

13,6

14,2

14,8

15 5.677.000

1,2 85,28

Total demand for PP bag for each year is shown below table: Table 12. Demand to PP bag by years, million bag Years 2003 2004 2005 2006 2007 2008 2009 (forecast)

Demand (mln. bag)

40,77 72,50 79,49 48,06 48,725 78,69 85,28

Chart 2 Demand to PP bag, million bags

The properties of PP bags in this field of demand: 

Size - 55 cm x 105 cm



Weight- average 50 gr.



Density- 10X10 and less.

30


Products share in total demand is shown below chart:

Chart 3. Products share in total demand

The industry on processing the agricultural production for food  

Flour-grinding (mill) and croup manufacture Sugar industry

Flour-grinding (mill) and croup manufacture

At present, the population of the Republic consumes more than 2,1 million tons of food grain (mainly wheat) annually.(Official statistic often doesn’t reflect real situation in this area. For example, according official statistic in 2007 was imported 1.411,580 tons of wheat. (Statistical Yearly, 2008). It was imported 2.224,3 thousand tons grain in 2008 year. From this 1.520 thousand tons of wheat used for flour and other part for fodder manufacture. For flour manufacture also it has been used 456 thousand tons of local wheat. (According and expert’s opinion). There are about seven major and some small mills, which produce flour, and cereals. If earlier in the Republic were imported ready flour, now needs of the population are meet by the local flour mills. This change has resulted in significant increase in demand to PP bag. All the products of these mills packed with PP bag. Output from 1 tons wheat

31


Medium output of flour from wheat is about 25% and may change according to sort of wheat. Rest part of output is bran and croup. For grinding the wheat and making flour and croup it is necessary to add 160 liters water per ton of grain. This water gives additional weight. According the experts opinions output from 1 tons wheat after milling approximately is: 1. Flour –-800-810 kg - 16 pieces of 50 kg bags of flour 2. Bran –-260- 270 kg - 14 bags (each bag consist 16-18 kg of bran) 3. Croup–-20-27 kg-0,3 bags For packaging of products that received at grinding process of one tons wheat it is necessary 32 bags in average. Table 13. The list of main flour producers, their market share

Name of mill

Capacity (Quantity of early processed wheat, tons)

Location

PP bag demand, mln

PP bag supplying source

1 Karat

Xirdalan set. (near Baku)

635 000

20,3 Has own PPWB factory

2 “Araz” (former

Zig set. (near Baku)

150 000

4,8 Trade Centers

Darnagul set.(near Baku) Binaqadi set.(near Baku) Ceyranbatan set

300 000

9,6 Trade Centers

Baku

150 000

1,6 Has own PPWB factory 1,6 Has own PPWB factory 4,8 Trade Centers

Kurdamir town

50 000

1,6 Trade Centers

8 Fatoglu

Ganca city

60 000

1,76 Trade Centers

9 Xacmaz (Sari Sunbul)

Xacmaz reg. Davaci reg Ganca city

50 000 50 000 50 000

1,6 Trade Centers 1,6 Trade Centers 1,6 Trade Centers

kombinat named after Z.A. Tagiyev) 3 Darnagul mill 4 Zangazur 5 “Jala un” of Gilan

holding 6 Montin mill (Anvar’s mill) 7 Aveta

11 Davaci 13 Ganca Neon Main mills total, ton 14 Other (small) mills Total

50 000 50 000

1 595 000

51,04

655 000

20,96

2 250 000

72

If we will calculate demand for packaging of mill output - wheat flour and other products proceeding from very cautious figure- 2,1 mln. tons of wheat we will get yearly demand about 72 mln. PP bag.

32


Market share of flour producers are shown below table:

Chart 4. Market share of flour producers Sugar industry

In 2006 year, it was started to operate the first sugar factory in Azerbaijan named Imishly Sugar Factory. Processing capacity of the factory is average 1200 tons of sugar beets per day. As a packaging material of sugar it is used PP bag. Production capacity changes in different seasons of the year. It was produced in 2006 year 212,276.20 tons, in 2007 year 302,091.15 tons and in 2008 year 350,000 tons crystal sugar: Table 14. Demand to sugar bag Year

Production, ton

Demand to PP bag, piece

Increase in demand, %

2006 2007 2008 2009 (forecast)

212,276.20 302,091.15 350,000 400,000

4,246,000 6,042,000 7,000,000 8,000,000

42,2 15,85 14,28

33


The properties of the bag that applicable in this field of industry: Size - 55 cm x 105 cm  Weight - average 120 gr.  Density- 10X10 and more. 

Fodder industry for livestock and poultry;

The country is well developed in cattle and poultry industry. The General Status of the market at present has the growing tendency. In result of this Azerbaijan hasn’t any dependence from import of livestock and poultry and their products. There are many companies that invest to this field of industry. The part of this finance directed to develop livestock and poultry field of agricultural industry. During the last years, it has been observed great rising trend in the agricultural and specially, in livestock and poultry industry in Azerbaijan (See below. Source Official yearbook. The agriculture of Azerbaijan 2009). Table 15 Livestock quantity, thousand pieces Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 (forecast)

Cattle and buffaloes

2031,6 2086,9 2178,6 2241,8 2315,8 2380,0 2445,0 2511,8 2569,6

34


Chart 5 Quantity of cattle and buffalos

For these types of agricultural industry necessary fodders produced from different kinds of grains with mineral additives. In Azerbaijan, there are a number of factories and plants producing fodder for livestock and poultry. All the products of these factories and workshops are also packed with PP bag. As stated above only 67% of wheat is reliable for flour production. Other part of wheat is directed to fodder (animal feed) production (According to the opinion of food security experts). If we consider that it is added mineral additives to this products, which is equal to 20% of total weight of the product, total demand will be 24 mln. PP bags. The demand growth tendency is shown below table: Table 16. Demand to PP bag for animal feed production

Wheat, mln ton Additives, mln ton Total weight, mln. ton Demand to PP bag, mln

2003

2004

2005

2006

2007

2008

2009

686 137 823

719 144 863

709 142 851

693 139 831

668 134 802

833 167 999

1000 200 1200

16,5

17, 3

17

16,6

16

20

24

35


Chart 6 Demand to PP bag for animal feed packaging

The properties of PP bag that mainly applicable in this field: Size - 55 cm x 105 cm  Weight - 50 gr and less.  Density- less from 10X10. 

Construction materials industry;

Throughout the world, PP bag is used for packing of cement, dry fillings, dry mixes for plaster, gypsum, etc. Two years ago, the only cement plant in Azerbaijan (with a complete production cycle) Garadagh Cement Factory planned to give up paper bags and move to the use of PPWBs. But because of the risk of re-use of empty bags in illegal workshops for the manufacture of counterfeit products, the factory abandoned those plans. Production of construction gypsum

According the Yearbook, 2008 report of State Statistical Committee of the RA Table 8

2002 2 286 t

2003 3 848 t

2004 884 t

2005 28 242 t

2006 35 034 t

2007 22 037 t

A number of companies engaged in dry mixes for plastering and repairs using PP bag for packaging their products. In Azerbaijan, PP bag is used for packaging of an ordinary building sand, and containers for the removal of construction debris. Currently, the production of PP bag is indeed a lucrative business. The demand for these products is steadily increasing in the short term, this business will remain profitable.

36


Total demand of Azeri agricultural and food industry for new (unused) PPWB yearly are shown at below table: Table 17. Total demand to PP bag in agricultural and food industry Name of production 1 2 3 4

Quantity of PP bag mln. pieces

Agriculture Production (primary harvest) Flour-grinding(mill) and croup manufacture Sugar industry Fodder industry for livestock and poultry

85 72 8 24

Total

189

Total yearly demand of Azeri agricultural, food industry and related branches for new PP bag is 189 mln. bags:

Chart 7 Demand to PP bag by industries

Another fields that uses PP bags are: Chemical industry; The industry on manufacture of charcoal; Construction and building repair industry (they use bags for gathering and transportation of old plaster, broken bricks and other repair waste); The main industry in Azerbaijan, which requires PPWB is an agricultural industry;

37


2.3.2. Main suppliers of PP bag

Main PP bag suppliers are situated in Baku and around. The reason for this that Baku is center of trade in republic and the most part of consumers of bags are in Baku. The list main PP bag suppliers are shown at below table: Table 18. List of main PP bag producers Company name, Owner

Location, Address

Baku, Keshla set., Energetic Str. 5, Tel. (012) 4471672; 4480215; 5111969, ram@azintex .com AZ1089, 2. Hovsan “Bakı Taxıl Baku, Terminalı" Hovsan set. MMC, S. Ziyadov AzeriStr. 1. Kazach Tel. : (12) joint 4577810 enterprice Fax : (12) 457 7811 3. “Caspian” AZ 1050, (name is Baku, conditionall Аbsheron y), Owner – region, “Gilan” Bakuholding Shmakhi highway, 21st km. 4. “Zangazur” Baku, Nabi Binaqadi set. Imanov Binaqadi highway 59, Tel.:411-5606. 411-34-64 1.

Ram ltd.

Capacity , yearly, mln bag

PP origin

Customers

Price, AZN Grain bag

- Turkm enistan

Main mills In Azerbaijan and abroad in Russia

53 cm x 105 cm-65 gr. 14 qapik

--

0,7 1,59% Turkm enistan

Little mills In Azerbaijan


--

3 6,82% Germa ny

Self supplying Mill of Gilan holding (Jala)


--

Self supplying and Main mills In Azerbaijan

50 kg Sugar bas 25 qap.

--

12*

10

% of total suppl y

22,73 n/a %

Price, AZN Sugar bag

38

PP Woven Bag Production Business plan Company name, Owner 5.

6.

7.

“Qafqaz” YTF (yumsaq tara tarabriki )(s oft packing materials factory) “Karat Holding” Co., Ownerpresident Asabil Qasimov

Small producers from Sumqait, Mashtaga, Binaqadi etc. Total

Location, Address

Capacity , yearly, mln bag

% of total suppl y

PP origin

Customers

Price, AZN Grain bag

Price, AZN Sugar bag

Sabirabad town

20**

0% n/a

Farmers in Sabirabad region and other regions around

50 cm x -105 cm- 40 gr. 14 qapik

Office Bakı, AZ 1065, M.Muxtarov Str.. 201 Tel: (+99412) 4368666, Faks:(+99412 ) 4368660 office@karat. az Factory; Bakı, Xirdalan set. BakuShmakhi highway, 8th km.

20,3

46,14 n/a %

Self supplying

53 cm x 105 cm-65 gr.

10

22,73 n/a %

Small mills, constriction material plants. Retail market (for hardware shops)

--

--

56 million bag

*Ram Ltd is the main competitor. Now Ram Ltd. uses only 10% of its capacity for the local market and produces only 12 million grain bags that requires market. **Qafqaz YTF” has stopped working. That is why its capacity deducted from total supply. Ram ltd. is the main producer and supplier . It is the second big factory in CIS. This

company also has factory in Krasnodar Russia (Has dealers in Ryazan, Saratov, Moscow regions, in Ukraine etc. Produces sugar bag, grain bag, cement bag and also big bags. The production equipment is Austria origin. ). The full capacity of the factory

39


is 220 million bags. They sell only 10% of their production to local market and the rest part (90%) to abroad, especially to Russia. “Caspian” is the part of “Gilan” holding and mainly supplies mill of this holding-“Jala”.

Now the company finishes installing new equipment in new wide building, not far from former place. Given capacity is for factory. “Karat” PPWB factory is the part of “Karat Holding” company who is main producer of

flour in Azerbaijan. The produce bags for their own use. “Zangazur”‘s product used first of all by company’s mill. Company was the main

supplier of Sun holding’s Sugar factory until 2009. Now company sell 50 thousand sugar bags produced for Sun holding for 25 qapik. Company isn’t able to receive orders from new customer, because they have lot of orders for bags from constant partners. “Qafqaz” YTF in Sabirabad current year the stood more than worked, and released

production in a small amount is very poor quality. People or company that dealt with the delivery of equipment, deceived investors by buying poor-quality equipment (second hand equipment China origin). That is why the production equipment is often breaks down. Besides this, factory hasn’t good specialists. Taking into account all above mentioned total offer of PP bag of different sizes in the market is equal to 66 million bags. The market share of the suppliers are shown at below chart:

Chart 8. Market share of main suppliers

If we take into account that “Karat Holding” and Caspian produces PP bag for its own use total offer by local suppliers will be equal to 42,7 million PP bags.

40


Another part of demand is meeting by imported product. In 2007 year Azerbaijan imported in total 15.553 t. (cost 21.188 thousand USD) polymers of propylene (According the Yearbook, 2008 report of State Statistical Committee of the RA) Table 19 Export to Azerbaijan Polypropylene polymer

Country 1 2 3 4 5 6 7

8

Turkmenistan Republic of Korea Russia Turkey Ukraine Hungary Iran Other countries

Volume (tons)

10.626.0 1.646,5 1 348,0 689,9 585,0 396.0 167,5 94,0

Value thousand USD 17.808,4 691,3 930,2 765,0 84,8 507,1 187,2

213,9

41


2.3.3 Quality and Prices in the market

As stated above one of the main consumers of PP bag is farmers who are the producers of primary agricultural products. Experts divide conditionally these farmers to 4 groups: First- producers who grow crops more than 1000 tons of crops; Second - producers who grow between 100 - 1000 tons of crops; Third -producers who grow between 10 - 100 tons of crops; Fourth - producers who grow less than 10 tons of crops.

Experts’ opinion is that market share of first group is not less than 30 percent. There some difference between choice of big, medium and small producers of primary agricultural production. Big producers –first group-usually use high quality, 10X10 and more density and 50-65 gr. weighted bags. Because they have enough information about the quality of the product and they are ready to pay money for it. Big producer of primary agricultural production (who produces thousand or more tons of crops) order PP bag directly in factory or produce it themselves. This demand volume allows them to order much quantity of PP bag and it gives them to get chipper price- AZN 0,14 and normal quality. They could buy it from wholesalers of PP bag that operate in Baku Sadarak Trade Center and Bina Trade Centers. Market behavior of second group is very similar. Farmers who grow less quantity of crops –third group- get the bags from wholesale traders in Baku, mainly in Baku Sadarak Trade Center and other markets, also in regions for AZN 0,15-0,16. In last case it gives him to save money on transport expenses to Baku and back. Farmers who grow very little quantity of crops-fourth group- producers who grow less than 10 tons of crops satisfied their bag demands usually in region center or very often in nearest shops-directly in village or neighbor village shops. The prices in village shop are AZN 0,2-0,4 higher compared prices in Baku, but farmer save money on transportation and also could buy bags and pay after month. Very often they have hard financial problems and couldn’t allow themselves high density bags (55-60 grams) and prefer 45-50 grams bags and they haven’t any information about the quality of the bags. Flour producers use high quality PP bag for their products. They commonly use PP bags which is 65 gr. weighted and density is equal to 10X10 and more as stated above. They select high quality PP bag, because it is affect their future sales. There is only one sugar producer in Azerbaijan and they import PP bag from Turkey from 2009 year. Till the 2009 year they used Zangazur PP bag factory. After they refused from their products because of bad quality and high prices. That is why for sugar industry quality is very important.

42


For fodder industry quality and density is not very important too. It is not required high density PP bag from the nature of fodder. Mainly they use 50 gr. and less weighted bags for packaging. Total demand to high quality and density PP bag is equal to 105,5 million bags. It is 56% of total demand:

Chart 9. Demand to high and low quality product

Common used PP bags in the market are: Table 20. Common used PP bag in the market Size:

Density:



120 gr.

53 X 105 sm.



115 gr.

50 X 100 sm.



65 gr.



50 gr. and less



55 X 105 sm.

 



10 X 10 inch and less

Weight:

Prices per 50, 55, 65 gr. weighted bags range from AZN 0,14 to AZN 0,20 in Baku. Price per bag is AZN 0,14 when customer buys it directly from factory and quantity is 10 thousands or more pieces. As stated above only 30% of primary agriculture products prefer high quality products and buy it from the PP bag producers. Other part buys PP bags from village shops. Village shops usually sell low quality, so low density and weighted bags (45-50 grams). Because their main costumers- local farmers hasn’t any information about the density,

43


weight of the bag. So, they prefer chipper bags. They take it on local village shops for AZN 0,23-0,25. For potato it is used 50 gr. and less weighted and 55 X 105 sm or 53 X 105 sm sized bags. They buy bags from the Trade Centers in Baku and other markets, also in regional traders. Prices for these types of bags range from AZN 0,16 to 0,18. Special places in Azeri agriculture have such plants as tobacco and cotton. Tobacco and cotton have low density and needs bags in same weight with potato or grain. For packaging of this crops farmers mainly use 55X105 sm. and 45-50 gram weighted bags. Quantity of bags influence to the price of the bag. Prices range for this type of bags AZN 0,16 to AZN 0,18. For flour production industry-it is very important high quality –high density and new bags. Optimal weight for packaging of mill output - wheat flour is 65 grams. For bran and croup it is suitable 55-60 gram weighted bags. and their cost is cheaper. Some flour producers have their own PPWB factories (Karat, Zangazur, Jala Un and etc.). This allow them to save money and not depend from bag producers. Flour producers prefer medium density (65 gram) bags with size 55 x 105 cm. Other huge producer-mills order necessary bags directly in PP bag factories. Price for this bags (they order commonly ten thousand-hundred thousand and more bags) bags range from AZN 0,13 to AZN 0,14. Medium and small size mills also prefer to use same quality and density bags. Because the quality of bags is the main factor in determining the quality of the wheat by the buyers. When mills’ owner hasn’t enough money to order before harvest season and big quantity of bags, he take it in shops a bit expensive-for AZN 0,15 to AZN 0,16. In Azerbaijan, there are a number of factories and plants producing feed for livestock and poultry. All the products of these plants and workshops is also packed with PP bags. They use 50-55 grams bags with same size and volume. Price for them is around AZN 0,15. Sugar industry is comparatively young field in Azerbaijan. For the package of sugar used by PP bag. The weight of the bag is equal to 115 or 120 grams. The size of the bag is equal to 55X105 sm. The production capacity is different in seasons of the year. The company exports half of its products. That is why the sugar industry requires high quality PP bag. Now the company imports PP bag for its production from Turkey. (Ozdal). The price per bag is equal to AZN 0,24. RESULT

Requirements for size: 55 X 105 sm. or 53 X 105 sm. Requirements for density: 10 X 10 inch and less Requirements for weight: 115 gr., 65 gr., 60 gr., 50 gr., and less Prices: •

For grain and vegetable bags: AZN 0,14 -0,20

•

For sugar bags: AZN 0,24

44


III Business implementation plan The business implementation process is prescribed below:

July 2009

Sep. 2009

Mar.2010

The breakdown of the works at the “delivery & construction” process is shown below table: Table 21. The breakdown of the works MONTH 1

2

3

4

5

6

7

8

9

10

PROCEDURE

Engineering & design

45

PP Woven Bag Production Business plan MONTH 1

2

3

4

5

6

7

8

9

10

PROCEDURE

Procurement & Equipment manufacturing Civil & Architectural work Ocean transportation Custom clearance & Inland Transportation Erection & installation Plant commissioning & test operation Training for Operation & Maintenance

The allocations of responsibilities at the business implementation process are shown below table: Table 22. Allocation of responsibilities No .

1.

2.

First Section

Description

Myung-

JVC

Jin Plant Set-up

Machinery



Flooring ; Grouting

√



Distributing panel of electric power supply;

√



Air pressure supply ;

√



Floor work ;

√



Pit for protect wire and pipe

√



Anchor bolting

√



Design and engineering

√



Manufacturing

√



Delivery

√



Supervision of Installation

√



Test running

√

46

PP Woven Bag Production Business plan No .

First Section

Description

Myung-

JVC

Jin 

Supervision of Start Operation



Custom clearance, transportation (after

√ √

FOB),

3.

Electric Controlling



Taxes imposed by Azerbaijan Government

√



Insurance Premium

√

Design

√

Manufacturing

√

Supervision of Installation

√

Electric supply : from electric control panel to

√

√

Wiring

√

√

Test running

√

each part in line ( 2nd supply )

4.

5.

Utility

General

Water Supply and Purification System

√

Fire Fighting and Safety System

√

Air Conditioning and Ventilation System

√

Lighting

√

Fuel and Lubricant

√

Consumables required for start-up and normal

√

operation of the plant

√

Telecommunication Facilities

√

Electric power supply and distribution system

√

Training of Local Personnel at the Plant site

√

Technical Transfer of Manufacturing Know-

√

how Buildings, foundation and civil work

√

Installation and erection work

√

Raw materials, sub-materials and consumables

√

required for Erection, Commissioning and

√

Start-up operation of the Plant

47


IV. The Basic Business Plan 1. The factory establishment 1.1 Location Evaluation

Plant is planned to be constructed at Sumgait Industrial Complex which is situated at the 50 km of the Baku-Quba highway.

Picture 1. The location of the land

The attractiveness for raw material procurement, infrastructure are main reason for selection of this area for plant construction. The attractiveness points of the selected area are shown below:  It is only 1 km far from the area to the Baku-Quba highway. Baku-Quba highway was reconstructed in 2008. It takes only an hour to reach to the airport and it is 40-50 km from the site to seaport.  In front of the area it is situated railroad area. This branch of railroad is used for raw material procurement to chemical companies operating nearby;  The area is situated not far from Electric power supply station. And it give advantage in electric energy supplying;  The water supplying pipeline is 200 meters far from the area;  The area is situated in Sumgait and the salaries lower compared with Baku. The weak points of the area are shown below:  It is far from main consumers (buyer and mills). So, main buyers and mills are situated in Baku.  It is far from the Baku Seaport;

48


1.2. The production Technology & Process

Selected equipment for the production are: 

PP Flat Yarn mfg line (Extruder, T-Die, Slitting, Stretching, Winder):



Circular Weaving Loom



Printing & Cutting Machine



Auto Folding & Sewing Machine



Press & Banding Machine



Water Jet Loom



Inside Laminator



PP Tubing line



Extrusion Laminator

The technical classification of the equipment is shown below: 1. PP High Speed Flat Yarn Extruder -- 1 set

Model: MJWT 110mm-750(X2)-280SP

Item

Model

General

Material

Extruder

Unit

MJWT 110mm-750(X2)-280SP

PP or HD/PE

Production range of Denier

dr

800~1,300 (+-20%)

Extrusion Capacity Screw Diameter L/D Driving Motor

kgs/hr mm Ø

313kg 110 30:1 90

kw

49


T-Die

Cooling Slitting Stretching & Annealing Winder

Control Panel Layout Space

Barrel Material

SACM#645

Auto Hopper Loader Die Type Die Length Temperature Control Cooling Method Slitting Method

Attached Coat hanger type (Double lips) 750 5 Sectional control Water Quenching Bath Single Edged stationary Razor Blade

mm

Stretching Method Stretching Ratio Annealing Method Winding Method Number of Spindle Bobbin Diameter (inside) Traverse Length Traverse Tension Control Line Speed Cabinet LxWxH

mm Ø inch

m/min m

Hot Plate Type 5~7 Times Hot Plate Type Torque Motor per Each Spindle 280 35 8 4 Lead Single Track Scroll Cam Magnetic System Max 250 Stand Type 50.3 x 6 x 3.8

2. Circular Loom -- 30 sets

Model: WCL-80 Type

Item

Unit

MJ-80 Type

Shuttle Speed

RPM pcs PPM Cm

800 4 840 26~80cm

mm p/in pcs mm Hp M

Ø155 7~14 640 Max 900 7.5 10.2(L)X2.2(W)X3(H)

Shuttle Weaving Speed Tubular Lay Flat Width Weft Package Weft Density Warp Creel Dia. of Web Roll Main Power Layout Space

50


Item

Unit

1 Color Printing, Cutting, Folding and Auto Sewing M/C Machine Speed bags/min Automatic Stacking Tube Width Tube Length Sewing Length Layout Space

bags mm mm mm m

Manual Sewing M/C Seam Stitch Range Material Thikness

mm mm

Needle Layout Space

m

Model

MJ-CPS 85 Max 30 0~100 840 26~80cm Ø155 9.5(L)X5.1(W) MJ-25 Double Thread Chain Stitch 7~11 up to 8mm DRx2 #25 or #26 1.2(L)X0.5(W)X0.7(H)

1.2.1 Price

The price of the production equipment is 1,695,000 US dollars. This price includes anchor bolting, design and engineering, manufacturing, delivery, supervision of installation, test running, supervision of Start operation, design, training of local Personnel at the plant site, Technical transfer of Manufacturing know-how. 1.2.2 The candition of the payment

The value of the contract will be paid by letter of credit by bank transfer. The letter of credit must be reliable during whole delivering time plus 60 days. 1.3. Import of the facilities & equipments

Tariffs are set at 15%, 5%, 3%, or 0.5%. Most goods carry the 15% import customs duty. There is also a 18% value-added tax on certain imports. A dividend withholding tax of 15% is applicable to monies sent abroad.

51


For the production equipment it is defined 0,5% custom tariff. (Group 84: Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof, Tariff item 8441 20 000 0 – machines for making bags, sacks or envelopes) It is defined 18% Value Added Taxes for the production equipment too. But this tax amount is refundable. (Extract from Tax Code of Azerbaijan Republic, Article 164, 164.1.5. investment of any property in the form of share into the charter fund (capital) of enterprise, with exception of imported property (investment of property as a share, if it is not directly related to obtaining of other property)) It will cost 3000$ for each container to bring equipment from Bandar Abbas, Iran to the factory site with cargo including insurance expenses. (Total 20 container). 1.4. Production process flow PP resin is heated with feeler of CaCo3 and pigment, melted and extruded as a flat film. It is then slit into tape yarn by the slitting unit and stretched and annealed. Next, a takeup winder winds the heat oriented tape yarn onto a bobbin.

Thread from the bobbin in the circular room ’s creel stand is woven into tubular cloth. After being printed and cut, the cloth is made into a PP woven bag by the sewing machine.

Picture 2. The production flow

52


2. The Production & Sales 2.1. Capacity

The production capacity of the equipment is 1.564 bags / min. The factory is going to work in three shifts (24 hours) and 365 days per year. The equipment works with 90% efficiency. So the maximum capacity of the factory is 8,2 million sugar bags and 34,8 million grain bags per year. 2.1.1 Key factors for making decision on capacity

Key factors for making decision on capacity are stated below:

The planned production capacity of the factory is shown below table: Table 23. Using of capacity

PP bag

04.201009.2010

10.201009.2011

10.2011- 10.2012- 04.2013 10.201309.2012 03.2013 -09.2013 09.2014

60%

75%

85%

85%

95%

95%

2.2. Cost Analysis 2.2.1 Raw materials (main and sub materials)

The following raw materials required for the production of the PP bag:     

Poly-propylene (Flat Yarn Grade) CaCo3(Calcium Carbonate) Master batch (Pigment) Sewing threads Printing ink

Poly-propylene (Flat Yarn Grade)

The properties of the poly-propylene (Flat Yarn Grade) are shown below table:

53


Table 24. The properties of polypropylene

Melt Index(M.I) Yield Tensile Ultimate Elongation Flexural Modules of Elasticity Heat distortion Temperature Softening Point (VICAT) IZOD Impact Strength Notched at+A36 23◦C Rockwell Hardness Accelerated oven ageing D-3012 at 150◦C (Forced air)

Test Method(ASTM) D-1238 D-638 D-638 D-790 D-648 D-1525 D-256

Figure 3.0 - 3.5 340 – 370 500% 15,000-17,000 95 - 120 151 -153 4–6

Unit g/10min kg/sq.cm kg/sq.cm ◦C ◦C kg.cm/cm

D-785

90 -100 360

R scale HR

Totally it is required 3341 ton polypropylene for production of sugar and grain bags. For one sugar bag it is required 109,25g poly-propylene plus 10% technical loss. Totally it is required 990 ton, if the production capacity of sugar bag will be 8,2 million sugar bags . For one grain bag it is required 61,75g poly-propylene plus 10% technical loss. Totally it is required 2,351 ton, if the production capacity of sugar bag will be and 34,8 million grain bags. CaCo3 (Calcium Carbonate)

The properties of required calcium carbonate are shown below: Table 25. The properties of calcium carbonate Composition : Shape : Gravity : Melt Index : Recommendable mixing ratio:

Calcium carbonate 70 %, LDPE 20 %, Polymer wax 10 % Pellet 1.65 - 1.7 /cc 16gr/10min 2-5%

It is required 5.75g per sugar bag and plus 10% technical loss per bag. If the maximum production capacity will be 8,2 million, it is required 49 ton for sugar bag production. It is required 3.25g per grain bag and plus 10% technical loss per bag. It is planned to produce 34,8 million grain bags at maximum capacity. At maximum capacity it is required 126 ton calcium carbonate for grain bag production. So, it is totally required 175 ton for production of sugar and grain bags.

54


Master Batch (Pigment)

The properties of required master batch are shown below: Table 26. The properties of master batch Type

:

Dry color type

Color

:

According to the specification of color of bag Resin : Master batch 100 : 1 Good resistance to heat, up to 200 - 280 ℃ for 10 minutes, to weather up to 200 hours in weather meter enough to be applied to production.

Mixing Property

: :

It is required 0.03 g and plus 10% technical loss per bag. For full capacity it is required 2,45 tons for sugar bag and 4,5 tons for grain bag. For white color bags it is not required master batch. Sewing Threads

The properties of required sewing threads are shown below: Table 27. The properties sewing thread Material : No. of filament: Winding : Traverse : Bobbin Tensile strength: Elongation : Linear length :

Vinylon or P.P spread yarn 20S/6 Clock wise twist W't : 1 kg/cone 6 inch Taper bobbin More than 6 kg 10 to 15 % approx 5,000m/kg

It is required 1 g and plus 10% technical loss per bag. For full capacity it is required 8 tons for sugar bag and 38 tons for grain bags. Totally it is required 46 tons. Printing Ink

Based material of printing ink is polyamide resin. Content of non-volatiles and of ink color is given as below: Table 28. The properties of printing ink Color shade

FPP Yellow 230 FPP Bronze Red 335

: :

Non-voltaire (wt %)

Viscosity poise at 25℃

43±1 47±1

15±5 2.2±0.8

55


FPP Geraum 335 FPP Bronze Blue CF-9-8498 : FPP Blue 800 : FPP Gree n E-2604 FPP Black 1000 FPP Cream Non-skid varnish T :

:

: :

45±1 41±1

3.5±2.5 1.5±0.5

46±1 44±1 46±1 42±1

1.0±0.5 10±5 1.3±0.7 3.3±1.7

It is required 2 g and plus 10% technical loss per bag (one color). For full capacity it is required 94 tons. The purchasing prices for main and sub-materials are shown at below table: Table 29. Prices for raw materials Raw materials

Price per ton (US dollars)

Poly-propylene (Flat Yarn Grade)

1090

CaCo3(Calcium Carbonate)

210

Supplier

Consumption (Per year, ton)

Turkmenbashi oil refining factories complex Wholesaler in local market, Iran

3,341 175

Utility requirements Electric Power Supply

Electrical devices of the Machine and Equipments correspond to International standard: Voltage of Electricity Control Voltage Max. Voltage Fluctuation Frequency

220V, 380V or 415V (Neutral wire shall be loadable) 200V single phase +/- 10 % of normal value 50 or 60 Hz.

Cooling Water

The standards for required water are: Operating Pressure Temperature Hardness PH value Classification

2 - 4 kg/cm2 15 - 20◦C Max. 50ppm of CaCo3 7.5 - 8.0 Soft water

Compressed Air

The standards for required compressed air are:

56


6 - 7 kg/cm2 - 30◦C None

Operating Pressure Dew Point Dust, Oil & Water content Table 30. Utility consumption #

Description

Quantity

1.

Flat yarn machine

1

2.

Circular Loom Printing, Cutting & Sewing M/C Manual sewing M/Cr Press & Banding M/C Air Compressor Total

40 3

3. 4. 5. 6.

Water req.

5.4ton/hr

Air req.

900NL/min

Electric Consumption

410kw/h 240 kw/h 18 kw/h

1 1 5.4 ton

0.4 0.75 22.5 900NL/min

668 kw/h

57


2.3. Operation 2.3.1 Organizational chart

Chart 10. Organizational chart of the plant


2.3.2 Staff of employees

Plant will be located in Sumgait as stated above and the area has a large workforce in desperate need of jobs. The company will attract the most talented and the most practiced persons in this industry responding to its corporative conseption. Salary and premiums of the employees are shown at below table: Table 31. Salary and premiums of the employees №

Position

1

Director (from Korea)

2

TOTAL Production & engennering department

General engeneer (supervisor) Foreman/Mechnician Operators Chief energetic (Electiricity) Engineer for protection of labor and safe of profession Wharehouseman

Person

Person /AZN

Total

SSF

Total with SSF

1 1

3200 3200

3200 3200

704 704

3904 3904

1 6 40 1 3

1 500 800 500 700 500

1 500 4 800 20 000 700 1 500

330 1 056 4 400 154 330

1 830 5 856 24 400 854 1 830

1

400

400

88

488


2.3.2 Staff of employees

Plant will be located in Sumgait as stated above and the area has a large workforce in desperate need of jobs. The company will attract the most talented and the most practiced persons in this industry responding to its corporative conseption. Salary and premiums of the employees are shown at below table: Table 31. Salary and premiums of the employees №

Position

7

8

Total with SSF

704 704

3904 3904

General engeneer (supervisor) Foreman/Mechnician Operators Chief energetic (Electiricity) Engineer for protection of labor and safe of profession Wharehouseman

1 6 40 1 3

1 500 800 500 700 500

1 500 4 800 20 000 700 1 500

330 1 056 4 400 154 330

1 830 5 856 24 400 854 1 830

1

400

400

88

488

TOTAL

51

4 000

28 900

6 270

34 770

Chief Accountant Wharehouse Accountant/Treasurer (Cashier)

1 1

1 000 600

1 000 600

220 132

1 220 732

TOTAL

2

1 600

1 600

352

1 952

Logistics and Planning Expert

1

1 000

1 000

220

1 220

TOTAL

1

1000

1000

220

1220

Markting & sales Manger

1

1 000

1 000

220

1 220

TOTAL

1

1 000

1 000

220

1 220

Drivers Telephone operator Security Housemaids

3 2 3 1

300 300 300 300

900 600 900 300

198 132 198 66

1 098 732 1 098 366

TOTAL

9

1 200

2 700

594

3 294

Department chief

1

1 000

1 000

220

1 220

TOTAL

1

1 000

1 000

220

1 220

1

1 000

1 000

220

1 220

2

6

SSF

3200 3200

TOTAL Production & engennering department

5

Total

3200 3200

Director (from Korea)

4

Person /AZN

1 1

1

3

Person

Finace department

Logistics department

Markting & sales department

Office management department

Human Resources department

Internal Control & Audit department

Intenal Auditor

PP Woven Bag Production Business plan TOTAL TOTAL Staff

1 67

1000 14000

1000 40400

220 8 800

1220 48 800

The Personnel table shows the position and salary of the 67 employees that will work in three shifts of eight hours each under Labor Code of Azerbaijan Republic. Production is based on seven working hours with one hour budgeted for maintenance and crew change. To facilitate training, during the first month one shift will be in operation, in the second month, two shifts. Assumpted 27,400 US dollar of salary amounts included to Cost of Goods Sold and 13 000 US dollars included to administration expences per month. No increase in wages and salaries have been forecasted. The Personnel table shows the direct and active involvement of the company director in all stages of the start up, purchasing of the machinery and running the business. The director and production manager will be invited from Republic of Korea. The team includes highly qualified professionals as consultants in different areas that will enable a smooth and efficient entry to production. The director is responsible for the day-day management of the Company with all powers, discretions and delegations authorised, from time to time, by the Board. He provides the leadership for business enhancement, customer focus, corporate image, organizational growth and sound financial health of the plant. He, through the channels of designated organisation, ensures control, monitoring and review of various activities, functions and services of the plant. He provides the apex level focus for Quality of products and customer satisfaction in the organization and allocates necessary resources for achievement of Quality initiatives. He exercises full authority for necessary actions required to implement the policy decisions as per the powers delegated to him. Chief accountant as head of all Finance & Accounts functions he provides policy directions on all financial and accounts functions and ensures management level control for sound financial health for the plant. Responsibilities of general engeneer are provide overall Management of the ongoing Production operations including inventory, control, scheduling, documentation, equipment maintenance, calibration, shipping, and quality control/inspection, assist in creation of efficient processes through hands-on development and training, track quality of all processes through analysis of recorded data and formation of additional test-points, correlate results with requirements/specifications, report directly to director.


2.3.3 Cost of Products

The total costs of products are shown below: Table 32. Total cost of products ANNUAL COSTS OF PRODUCTS – TOTAL, US dollars

Raw materials Utilities Energy Spare parts consumed Labour Labour overhead costs (taxes etc.) FACTORY COSTS Administrative overhead costs OPERATING COSTS Depreciation Financial costs TOTAL PRODUCTION COSTS Direct marketing costs Marketing overhead costs COSTS OF PRODUCTS Cost per sugar bag Cost per grain bag

Production 04.201010.2010





1 299 037,47 137 561,24 3 305,24 0,00 115 080,35 25 317,60 1 580 301,90 167 129,00 1 747 430,90 194 567,10 157 500,00 2 099 498,00 0,00 952,86 2 100 450,86

2 783 651,61 294 774,07 5 509,57 21 181,80 246 600,75 54 252,00 3 405 969,79 248 645,11 3 654 614,90 349 776,46 131 250,00 4 135 641,36 0,00 10 949,83 4 146 591,19

3 154 805,16 334 077,28 5 509,57 21 181,80 279 480,85 61 485,60 3 856 540,26 244 765,04 4 101 305,30 349 776,46 26 250,00 4 477 331,76 0,00 12 409,81 4 489 741,57

3 340 374,63 353 728,07 5 509,57 21 181,80 295 920,19 65 102,24 4 081 816,50 240 510,04 4 322 326,54 349 776,46 0,00 4 672 103,00 0,00 13 139,80 4 685 242,80

3 525 958,79 373 380,50 5 509,57 21 181,80 312 360,95 68 719,20 4 307 110,81 236 239,45 4 543 350,26 349 776,46 0,00 4 893 126,72 0,00 13 869,79 4 906 996,51

0,19 0,12

0,18 0,11

0,17 0,11

0,17 0,11

0,17 0,11

Chart 11. Parts of expenses in total COGS


2.4. Sales & Marketing 2.4.1 Annual market share forecasting & selling quantities

Sales Forecast for the products are: Table 33. Production and Sales Programme –SUGAR BAG, US dollars Production Production Production

Quantity produced Quantity sold Gross unit price (average) SALES REVENUE

Production Production

04.201008.2010

09.201008.2011

09.2011 -08.2012

09.201208.2013

09.201308.2014

2 059 751,00 2 059 751,00 0,24

6 179 253,75 6 179 253,75 0,24

7 003 154,25 7 003 154,25 0,24

7 415 105,00 7 415 105,00 0,24

7 827 055,00 7 827 055,00 0,24

494 340,24

1 483 020,90

1 680 757,02

1 779 625,20

1 878 493,20

Table 34 Production and Sales Programme-Grain Bag, US dollars

Stock brought forward Quantity produced Stock carried over Quantity sold Gross unit price (average) SALES REVENUE

Production

Production

Production

Production

Production

04.2010 -08.2010

09.2010 -08.2011

09.2011 -08.2012

09.2012 -08.2013

09.2013 -08.2014

0,00

1 160 348,00

1 450 434,94

1 643 826,28

1 740 521,94

9 862 958,00

26 397 915,94

29 782 264,33

31 426 090,67

33 166 612,67

1 160 348,00

1 450 434,94

1 643 826,28

1 740 521,94

1 837 217,61

8 702 610,00

26 107 829,00

29 588 873,00

31 329 395,00

33 069 917,00

0,17

0,17

0,17

0,17

0,17

1 479 443,70

4 438 330,93

5 030 108,41

5 325 997,15

5 621 885,89

Projected market share between main suppliers is prescribed at below table: 04.2010-08.2010

09.2010-08.2011

16%

47%

53%

56%

59%

100%

100%

100%

100%

100%

Grain bag Sugar bag

09.2011-08.2012

09.2012-08.2013

09.2013-08.2014

2.4.2 Target market

For a careful analysis of market and its characteristics the Plant decided to obtain answers to five basic questions: i. ii. iii. iv. v. vi. vii.

Who are the competitors? Who will buy Company’s products? What will they buy? Where will they buy? When will they buy? Did they prefer qualitative product or not? What are the prices in the market?

PP Woven Bag Production Business plan Who are the competitors? -The research conducted by company showed that it is great

demand to PP bags. The research show that the PP bag producers sale mainly grain bags. They research also shows that the main PP bag producers are Ram Ltd., Zangazur, Karat Holding and in future it will be Caspian. But Zangazur and Karat Holding produce PP bag for their own consumption and they didn’t increase their production capacity and quality. Who will buy Company’s products? - Market research shows that the main buyers of PP bag are the industry on processing the agricultural production for food, primary agricultural industry, fodder industry for livestock and poultry. And there is only sugar production company operating in Azerbaijan that has demand to sugar bag. What they will buy? - generally consumers buy 55smX105sm sized, 65gr weighted bags. Where they buy? – Big agriculture products producers buy it directly from the factory. But

small producers buy it from wholesalers and local village shops. When they buy? – As we stated there are great demand to PP bag. Sometimes there was

deficits of grain bags in the market and they had to buy low quality and different sized bags. That is why consumers buy it two or three month before they produce their products. Did they prefer qualitative product or not ? – Only 56% of producers prefer high quality

products. Because they have enough information about the quality of the product and that is why they are ready to spend money for high quality products. What is the prices in the market? Prices is range from AZN 0,14 to AZN 0,20 for grain bags according to their quality. So, our according to our investigation and results of market search our target market are:  Primary agricultural products producers;  Flour producers;  Sugar industry;  Fodder producers. 2.4.3 Size of the market

Research shows every year demand to PP bag has an increasing tendency. Size of the market for the grain bag equal to 181 million bags and for sugar bag equal to 8 million bags. For the last three years size of the market increased 37 million bags. 2.4.4 Market positioning

Plant’s new products will be positioned as local high quality products. Products of the Sponsor have the high rate consumers’ trust. The results of researched confirm that brands have got high value and able to generate the high revenues. Company is planning to continue this trend and try to obtain similar results for its new product. Positioning of the product at the market will have the slogan as “The Best Quality for the Low Price”


2.4.5 Market strategy

Taking into account all above mentioned issues we will first focus to grain production companies/persons and mills. To realize this purpose our marketing strategy: 

Product – to offer the product that will satisfy the needs and wants of the

customers;  Price – select the competitive price. the most efficient means of promoting and creating  Promotion – select awareness of the product in the marketplace  Distribution – select the most efficient means of bringing the product to the marketplace. Marketing strategy is prescribed more detailed below at chart:

Start phase – the plant will select target market segments and introduct ti this markets.

To achieve to these targets it will be provided active promotion campaign. Growth phase – the plant is planning to increase production capacity from 60% to 85%

and increase market share. Jump phase – the plant is planning to increase production capacity from 85% to 95%

and market share accordingly. 2. 4.5.1 Product

There are different types of PP bags are in use in local market. Consumers use it for packaging of sugar, grain, hazelnuts, animal foods and etc. But the properties is different for each type of product that counted above. Our final products are sugar bag and grain bag. The properties of the PP sugar bag are:


Table 35. Properties of sugar bag Shape of bag

:

Dimension of the bag : Weight of the bag: Cutting Length: Material: Denier of yarn: Density of weaving

Bottom sewn

:

1000mm(L) x 550mm(W) Approx. 115gr/bag 1,000mm Polypropylene Flat yarn grade. 1000 D (1.95mm - width) 10 warps x 10 wefts/inch

The properties of the PP grain bag are: Table 36. Properties of grain bag Shape of bag

:

Dimension of the bag : Weight of the bag: Cutting Length: Material: Denier of yarn: Density of weaving

Bottom sewn

:

1050mm(L) x 550mm(W) Approx. 65 gr/bag 1,000mm Polypropylene Flat yarn grade. 1000 D (1.95mm - width) 10 warps x 10 wefts/inch

2.4.5.2 Pricing strategy

In selecting the prices for the products the factory takes into account the following principles: Select the most profitable prices;  Select the most competitive prices;  Select the prices that allow us to position in the marketplace.  Select the price that can affect to the demand of the consumers. There are two main factors in formulating pricing strategy:  Price of polypropylene;  Price of competitors. 

Price of polypropylene. In the beginning of July Polypropylene prices remained steady

for long time and increased in second half of the month. Polypropylene granule prices lingered at a low level in the in the beginning of the month, because many of the producers settled previous goods at low prices. In the beginning of the first week of July price of Polypropylene in the F E Asian region was US$ 1120/ton and in S E Asian region price was US$ 1110/ton. In the U.S.A market U.S Total offered a cargo at the level of US$ 1100/ton but it was hard to find any buyers in poor economic condition. In Asian market Reliance offered Polypropylene raffia grade at US$ 1130/ton for the August delivery. Basell concluded its June quotation of Polypropylene raffia grade at around US$ 1280/ton. APPC in M E Asia announced its August offers at US$ 1150/ton. Trading volume in the market was moderate, inquires for imported cargoes were increased as


market faced supply shortage by the end of the first half of the last fortnight. Price of Polypropylene raffia grade remained stand still and was assessed at the same level of the beginning of the last fortnight of July only. Price of PP raffia in the F E Asia and in S E Asia was offered at US$ 1120/ton and US$ 1110/ton respectively. In the U.S.A market Polypropylene price was expected to rise further up to 8.5 cents/pound which was assessed in the range of 40 cents/pound to 50 cents/pound. Buyers in U.S.A market were reluctant to purchase more material at current prices due to uncertain short term demand which could not strengthen the market fundamentals. In the beginning of the second half of July Polypropylene producers began to release new nomination prices and offers, which were mainly accepted by the downstream buyers which pushed the price ahead. The supply side turned thinner in the second half which provided good fundamental support to the producers and traders' to hike offers. Buyers were not very keen to buy at the higher rate and kept the stance of wait and watch as price of Crude Oil and Naphtha was decreasing. Price for August nomination was increased by other firms in Korean and in Chinese region too. S Korea based Honam Petrochemical offers for August delivery surged to US$ 1170/ton which was same as the offers from SGC Thailand for August delivery of Polypropylene raffia grade. China based PetroChina increased its offered rate for Polypropylene raffia to RMB 9900/ton. European polypropylene prices leaped high by around € 100/ton due to production cutbacks and firm demand. Price of PP in European market was assessed at €900/ton which was earlier at € 800/ton. Production of Polypropylene in European region was reduced in double digits on Y-O-Y volume analysis and current operational rate of crackers producing Polypropylene in European region was approximately near 75 percent only. Polypropylene raffia grade imported from Mediterranean Sea market was offered at 1160/ton in Chinese market whereas Russian raffia was offered in the

range of US$ 1150/ton to US$ 1160/ton. A costliest offer was from US Total which offered the material at US$ 1190/ton for August delivery. By the end of the second half of the last fortnight price of Polypropylene raffia grade increased mainly due to tight availability. In Chinese market mainstream offers were assessed in the range of RMB 9800/ton to RMB 10800/ton. Indian Reliance also increased its offered price to INR 67/Kg in domestic market. In F E Asian and in S E Asian region price was increased by US$ 20/ton and hovered around US$ 1140/ton and US$ 1130/ton respectively. The polypropylene price trend for the last one year was as follows: Table 37. The polypropylene (Yarn grade) price trend Price (US$ / MT) 2008

2009

July August September October November December January February

2050 1870 1560 1205 695 775 850 950


July

March April May June 1st Week 2nd Week

940 1070 1095 1070 1110 1120

Chart 12. Polypropylene price (Yarn grade) trend Future market forecast: Price of Polypropylene is expected to remain sluggish to firm in the near future. Price of competitors. The results of market search shows that two competitors Ram Ltd

and Zangazur dominating in the market and half of the products are imported from abroad. The best advantage of the plant will be that the quality of the products produced by the plant is higher than competitors. The competitive strategy of the company is prescribed at below mentioned table. Organization Structure and Plant Efficiency

• The low overheads will enable the Company to maintain its low pricing strategy, and deliver high quality products.

•The inherent strengths of creating a low cost high quality product will allow the Plant to


Technical Knowhow

Customer Focus

hold a strategic position over other PP bag manufacturers, and achieve its target market share in the PP bag market. • The Plant’s low overheads will be achieved through the employment of only fully qualified and capable management to perform the required task. •Having the high technological equipment, technical knowledge provided by equipment supplier and the ability to introduce high quality products has enabled the Plant will increase its current market share in the PP bag market. • Having the technical know-how also will enable the management to better understand the market trends of customers, suppliers and competitors. As such, the Plant will have the ability to adapt to market requirements, and customer specifications. • The Plant will have the ability to deliver high quality and low price PP bag required by customers. With this, the Plant will be in a better position to be aware of customer needs.

Taking into account all above mentioned principles and factors the plant selected the following sales prices: Table 38. Sales prices for products Name of the product

Price, US dollars

Sugar bag, 115g, 100smx55sm Grain bag, 65g, 105Smx55sm

0,205 0,162

2.4.5.3 The promotion

The key points of the promotion of products: 1. Advertising   

To settle the information in the catalogs and inquiring books; Advertising in the construction products shop; To settle the information about products of the company in the specialized industry journals;

2. The participation in the specialized industry exhibitions  

International; Internal country.

3. Stimulating of selling 

Directly sellings;

PP Woven Bag Production Business plan  

Price concessions; Discont cards .

4. PR   

The ceremony of the presentation of the company and products; Articles which form image; Press conferences presenting innovations periodically.

Parts of the products in total revenue:

Chart 13. Part of products in total revenue


V. Economic Feasibility Study 1. Bases and Assumptions

The projected profit and loss and cash flows for the Company are premised on the following bases and assumptions: Annual depreciation rates are at: Table 39. Annual depreciation rates Assets

Depreciation rates

Land Building Plant & machinery Motor vehicles Office, furniture & fittings Intangible assets

0% 5% 14% 14% 25%

20%

Table 40. Expense rates Expenses Rates

1st year

2nd year

3rd year

4th year

5th year

Insurance rate rel. to net value of the assets Property tax rel. to net value of the assets Profit Tax Rate Bank charges

0.3% 1% 20% 0,1% of sales

0.3% 1% 20% 0,1% of sales

0.3% 1% 20% 0,1% of sales

0.3% 1% 20% 0,1% of sales

0.3% 1% 20% 0,1% of sales

Table 41. Road tax Description of item of taxation Light vehicles Engine volumes up to 2000 cubic sm Engine volumes above 2000 cubic sm.

Buses and other automobile transports

Road tax rate

For each cubic sm. of engine volume — 0.01 AZN 20 manat + 0.02 AZN for each cubic sm. of engine volume for the portion of engine exceeding 2000 cubic sm. For each cubic sm. of engine volume — 0.02 AZN

Assumptions for keys: Conservative key Price , USD dollars

Negative key

Optimistic key

PP Woven Bag Production Business plan (per bag) -Sugar bag -Grain bag Raw materials , total per ton Energy Utilities Spare parts consumed (for year) Labour costs (direct) Marketing costs

0,205 0,161 1090,17

-2% -2% +2%

+2% +2% -2%

0,05

+2% +2% +2%

-2% -2% -2%

+2% +2%

-2% -2%

21 181,76 28 500 0,05% of sales revenue

Assumptions for working capital

Days coverage

Coefficient of turnover

--

--

1,00 30,00

360,00 12,00

--

--

-90,00 90,00 1,00 1,00

-4,00 4,00 360,00 360,00

0,00 0,00 --

--

-90,00 90,00 1,00 1,00

-4,00 4,00 360,00 360,00

0,00 20,00

18,00

30,00 30,00

12,00 12,00

30,00 30,00 0,00

12,00 12,00

INVENTORY

Indirect costs Energy Spare parts consumed

PP Woven bag for sugar Raw materials -POLY-PROPYLENE -CALPET (CALCIUM CARBONATE) -Others

Utilities Work in progress Finished product PP woven bag for grain Raw materials -Polypropylene -CALPET (CALCIUM CARBONATE) -Others

Utilities Work in progress Finished product ACCOUNTS RECEIVABLE -PP Woven bag for sugar -PP woven bag for grain

CASH-IN-HAND -Cash-in-hand-local - Cash-in-hand-foreign thereof short-term deposits (%)


Interest rate (%)

ACCOUNTS PAYABLE Indirect costs Energy Labour Factory overhead costs Administrative overhead costs Social costs etc. (on salaries) Materials and services Insurance Director Bank charges Finance department Wharehouse accountant/Treasurer Logistics department Internal control & audit Marketing Land taxes Road taxes Property tax Marketing overhead costs PP Woven bag for sugar

Raw materials -POLY-PROPYLENE -CALPET (CALCIUM CARBONATE) -Others

Utilities Repair, maintenance, material Labour Production&engeneering department Internal control & audit Marketing Taxes General engeneer Marketing overhead costs

PP Woven bag for sugar Raw materials -POLY-PROPYLENE -CALPET (CALCIUM CARBONATE) -Others

Utilities Spare parts consumed

Days coverage 0,00

Coefficient of turnover

--

--

1,00 ---1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 1,00 --

360,00 ---360,00 360,00 360,00 360,00 360,00 360,00 360,00 360,00 360,00 360,00 360,00 360,00 360,00 360,00 --

--

--

0,00 0,00 1,00 15,00 1,00 -3,00 1,00 1,00 1,00 1,00 1,00

360,00 24,00 360,00 -120,00 360,00 360,00 360,00 360,00 360,00

---

---

0,00 0,00 1,00 15,00 --

360,00 24,00 --


Repair, maintenance, material Labour Production&engeneering department

Days coverage 1,00 -3,00

Coefficient of turnover 360,00 -120,00


2. Total investment costs ,

M2

Unit price

7000

11,2

78 120

Land for Plant

3900

11,2

43 524

Land for Wharehouse

850

11,2

9 486

Reserve space

2250

11,2

25 110

4750

310

1 472 500

Main factory building

3900

310

1 209 000

Warehouse

850

310

263 500

Land (Total Area)

Civil work, Structure and Building

Plant machinery and equipment

Amount

1 694 934

Auxiliary and service plant equipment

142 600

Service car

90 000

Furniture for office

15 000

Utility equipment (transformer)

19 000

Intangible asset

18 600

Environmental Protection

10 000

Contingency

10 000

Pre-Construction Expenditure

34 883

Consulting services fee (legal, accounting) Company Formation Fee

18 600

Engineering (Plant machinery installation supervision)

16 200

83

Net working capital requirements

1 469 583

TOTAL INVESTMENT

4 912 620


Chart 14. Breakdown of the investment costs


3. Income statement 3.1 INCOME STATEMENT, US dollars, Conservative view US dollars Production 04.2010-10.2010 2 382 145,75 1 479 179,82 902 965,93 37,91 365 954,20 537 011,73 22,54 0,00 157 500,00 379 511,73 15,93 379 511,73 75 902,35 303 609,38 12,75 0,00 303 609,38

Production 11.2010-10.2011 5 410 471,66 3 345 079,31 2 065 392,36 38,17 636 062,77 1 429 329,59 26,42 0,00 131 250,00 1 298 079,59 23,99 1 298 079,59 259 615,92 1 038 463,67 19,19 0,00 1 038 463,67

Production 11.2011-10.2012 6 166 819,13 3 811 133,24 2 355 685,89 38,20 633 642,68 1 722 043,21 27,92 0,00 26 250,00 1 695 793,21 27,50 1 695 793,21 339 158,64 1 356 634,57 22,00 0,00 1 356 634,57

Production 11.2012-10.2013 6 547 647,76 4 045 682,73 2 501 965,02 38,21 630 117,67 1 871 847,36 28,59 0,00 0,00 1 871 847,36 28,59 1 871 847,36 374 369,47 1 497 477,89 22,87 0,00 1 497 477,89

Net profit to equity (%)

11,68

39,94

52,18

57,60

62,00

Net profit to net worth (%) Net profit+interest to investment (%)

10,46 10,54

26,34 25,35

25,60 29,03

22,03 30,95

19,17 32,82

Sales revenue Less variable costs VARIABLE MARGIN in % of sales revenue Less fixed costs OPERATIONAL MARGIN in % of sales revenue Interest on short-term deposits Financial costs GROSS PROFIT FROM OPERATIONS in % of sales revenue TAXABLE PROFIT Income (corporate) tax NET PROFIT in % of sales revenue Dividends RETAINED PROFIT RATIOS

Production 11.2013-10.2014 6 913 186,84 4 271 464,15 2 641 722,69 38,21 626 577,07 2 015 145,63 29,15 0,00 0,00 2 015 145,63 29,15 2 015 145,63 403 029,13 1 612 116,50 23,32 0,00 1 612 116,50

76


3.2 NET INCOME STATEMENT, US dollars, Negative view

Sales revenue Less variable costs VARIABLE MARGIN in % of sales revenue Less fixed costs OPERATIONAL MARGIN in % of sales revenue Interest on short-term deposits Financial costs GROSS PROFIT FROM OPERATIONS in % of sales revenue Extraordinary income Extraordinary loss Depreciation allowances GROSS PROFIT Investment allowances TAXABLE PROFIT Income (corporate) tax NET PROFIT in % of sales revenue Dividends RETAINED PROFIT RATIOS Net profit to equity (%) Net profit to net worth (%) Net profit+interest to investment (%)

Production 04.2010-10.2010 2 334 502,83 1 508 763,41 825 739,42 35,37 368 818,68 456 920,74 19,57 0,00 157 500,00 299 420,74 12,83 0,00 0,00 0,00 299 420,74 0,00 299 420,74 59 884,15 239 536,59 10,26 0,00 239 536,59

Production 11.2010-10.2011 5 302 262,23 3 411 980,89 1 890 281,34 35,65 640 579,73 1 249 701,60 23,57 0,00 131 250,00 1 118 451,60 21,09 0,00 0,00 0,00 1 118 451,60 0,00 1 118 451,60 223 690,32 894 761,28 16,88 0,00 894 761,28

Production 11.2011-10.2012 6 043 482,75 3 887 355,91 2 156 126,84 35,68 638 153,37 1 517 973,47 25,12 0,00 26 250,00 1 491 723,47 24,68 0,00 0,00 0,00 1 491 723,47 0,00 1 491 723,47 298 344,69 1 193 378,78 19,75 0,00 1 193 378,78

Production 11.2012-10.2013 6 416 694,80 4 126 596,39 2 290 098,41 35,69 634 614,58 1 655 483,83 25,80 0,00 0,00 1 655 483,83 25,80 0,00 0,00 0,00 1 655 483,83 0,00 1 655 483,83 331 096,77 1 324 387,06 20,64 0,00 1 324 387,06

Production 11.2013-10.2014 6 774 923,10 4 356 893,43 2 418 029,67 35,69 631 059,90 1 786 969,78 26,38 0,00 0,00 1 786 969,78 26,38 0,00 0,00 0,00 1 786 969,78 0,00 1 786 969,78 357 393,96 1 429 575,82 21,10 0,00 1 429 575,82

9,21

34,41

45,90

50,94

54,98

8,44 9,14

23,96 22,33

24,22 25,72

21,18 27,49

18,61 29,24

77


3.2 NET INCOME STATEMENT, US dollars, Negative view

Sales revenue Less variable costs VARIABLE MARGIN in % of sales revenue Less fixed costs OPERATIONAL MARGIN in % of sales revenue Interest on short-term deposits Financial costs GROSS PROFIT FROM OPERATIONS in % of sales revenue Extraordinary income Extraordinary loss Depreciation allowances GROSS PROFIT Investment allowances TAXABLE PROFIT Income (corporate) tax NET PROFIT in % of sales revenue Dividends RETAINED PROFIT RATIOS Net profit to equity (%) Net profit to net worth (%) Net profit+interest to investment (%)

Production 04.2010-10.2010 2 334 502,83 1 508 763,41 825 739,42 35,37 368 818,68 456 920,74 19,57 0,00 157 500,00 299 420,74 12,83 0,00 0,00 0,00 299 420,74 0,00 299 420,74 59 884,15 239 536,59 10,26 0,00 239 536,59

Production 11.2010-10.2011 5 302 262,23 3 411 980,89 1 890 281,34 35,65 640 579,73 1 249 701,60 23,57 0,00 131 250,00 1 118 451,60 21,09 0,00 0,00 0,00 1 118 451,60 0,00 1 118 451,60 223 690,32 894 761,28 16,88 0,00 894 761,28

Production 11.2011-10.2012 6 043 482,75 3 887 355,91 2 156 126,84 35,68 638 153,37 1 517 973,47 25,12 0,00 26 250,00 1 491 723,47 24,68 0,00 0,00 0,00 1 491 723,47 0,00 1 491 723,47 298 344,69 1 193 378,78 19,75 0,00 1 193 378,78

Production 11.2012-10.2013 6 416 694,80 4 126 596,39 2 290 098,41 35,69 634 614,58 1 655 483,83 25,80 0,00 0,00 1 655 483,83 25,80 0,00 0,00 0,00 1 655 483,83 0,00 1 655 483,83 331 096,77 1 324 387,06 20,64 0,00 1 324 387,06

Production 11.2013-10.2014 6 774 923,10 4 356 893,43 2 418 029,67 35,69 631 059,90 1 786 969,78 26,38 0,00 0,00 1 786 969,78 26,38 0,00 0,00 0,00 1 786 969,78 0,00 1 786 969,78 357 393,96 1 429 575,82 21,10 0,00 1 429 575,82

9,21

34,41

45,90

50,94

54,98

8,44 9,14

23,96 22,33

24,22 25,72

21,18 27,49

18,61 29,24

77


3.3 NET INCOME STATEMENT ,US dollars, Optimistic view Production 04.2010-10.2010 2 429 788,66 1 449 596,22 980 192,44 40,34 363 100,92 617 091,52 25,40 0,00 157 500,00 459 591,52 18,91 0,00 0,00 0,00 459 591,52 0,00 459 591,52 91 918,30 367 673,21 15,13 0,00 367 673,21

Production 11.2010-10.2011 5 518 681,10 3 278 177,72 2 240 503,38 40,60 631 557,00 1 608 946,38 29,15 0,00 131 250,00 1 477 696,38 26,78 0,00 0,00 0,00 1 477 696,38 0,00 1 477 696,38 295 539,28 1 182 157,10 21,42 0,00 1 182 157,10

Production 11.2011-10.2012 6 290 155,51 3 734 910,58 2 555 244,94 40,62 629 143,18 1 926 101,75 30,62 0,00 26 250,00 1 899 851,75 30,20 0,00 0,00 0,00 1 899 851,75 0,00 1 899 851,75 379 970,35 1 519 881,40 24,16 0,00 1 519 881,40

Production 11.2012-10.2013 6 678 600,71 3 964 769,08 2 713 831,63 40,63 625 631,95 2 088 199,68 31,27 0,00 0,00 2 088 199,68 31,27 0,00 0,00 0,00 2 088 199,68 0,00 2 088 199,68 417 639,94 1 670 559,75 25,01 0,00 1 670 559,75


14,14

45,47

58,46

64,25

69,02


12,39 12,06

28,49 28,61

26,81 32,63

22,76 34,72

19,65 36,75

Sales revenue Less variable costs VARIABLE MARGIN in % of sales revenue Less fixed costs OPERATIONAL MARGIN in % of sales revenue Interest on short-term deposits Financial costs GROSS PROFIT FROM OPERATIONS in % of sales revenue Extraordinary income Extraordinary loss Depreciation allowances GROSS PROFIT Investment allowances TAXABLE PROFIT Income (corporate) tax NET PROFIT in % of sales revenue Dividends RETAINED PROFIT RATIOS

Production 11.2013-10.2014 7 051 450,57 4 186 034,86 2 865 415,71 40,64 622 105,43 2 243 310,28 31,81 0,00 0,00 2 243 310,28 31,81 0,00 0,00 0,00 2 243 310,28 0,00 2 243 310,28 448 662,06 1 794 648,22 25,45 0,00 1 794 648,22

78


3.3 NET INCOME STATEMENT ,US dollars, Optimistic view Production 04.2010-10.2010 2 429 788,66 1 449 596,22 980 192,44 40,34 363 100,92 617 091,52 25,40 0,00 157 500,00 459 591,52 18,91 0,00 0,00 0,00 459 591,52 0,00 459 591,52 91 918,30 367 673,21 15,13 0,00 367 673,21

Production 11.2010-10.2011 5 518 681,10 3 278 177,72 2 240 503,38 40,60 631 557,00 1 608 946,38 29,15 0,00 131 250,00 1 477 696,38 26,78 0,00 0,00 0,00 1 477 696,38 0,00 1 477 696,38 295 539,28 1 182 157,10 21,42 0,00 1 182 157,10

Production 11.2011-10.2012 6 290 155,51 3 734 910,58 2 555 244,94 40,62 629 143,18 1 926 101,75 30,62 0,00 26 250,00 1 899 851,75 30,20 0,00 0,00 0,00 1 899 851,75 0,00 1 899 851,75 379 970,35 1 519 881,40 24,16 0,00 1 519 881,40

Production 11.2012-10.2013 6 678 600,71 3 964 769,08 2 713 831,63 40,63 625 631,95 2 088 199,68 31,27 0,00 0,00 2 088 199,68 31,27 0,00 0,00 0,00 2 088 199,68 0,00 2 088 199,68 417 639,94 1 670 559,75 25,01 0,00 1 670 559,75


14,14

45,47

58,46

64,25

69,02


12,39 12,06

28,49 28,61

26,81 32,63

22,76 34,72

19,65 36,75

Sales revenue Less variable costs VARIABLE MARGIN in % of sales revenue Less fixed costs OPERATIONAL MARGIN in % of sales revenue Interest on short-term deposits Financial costs GROSS PROFIT FROM OPERATIONS in % of sales revenue Extraordinary income Extraordinary loss Depreciation allowances GROSS PROFIT Investment allowances TAXABLE PROFIT Income (corporate) tax NET PROFIT in % of sales revenue Dividends RETAINED PROFIT RATIOS

Production 11.2013-10.2014 7 051 450,57 4 186 034,86 2 865 415,71 40,64 622 105,43 2 243 310,28 31,81 0,00 0,00 2 243 310,28 31,81 0,00 0,00 0,00 2 243 310,28 0,00 2 243 310,28 448 662,06 1 794 648,22 25,45 0,00 1 794 648,22

78


4. Balance Sheet 4.1 PROJECTED BALANCE SHEET, concervative view, US dollars 11.2009-10.2010

TOTAL ASSETS Total current assets ~Inventory on materials & supplies ~Finished product ~Accounts receivable ~Cash-in-hand ~Cash surplus, finance available Total fixed assets, net of depreciation ~Fixed investments ~Construction in progress ~Total pre-production expenditures ~Less accumulated depreciation ~Less depreciation allowance TOTAL LIABILITIES Total current liabilities

~Accounts payable Total long-term debt Total equity capital ~Ordinary capital Reserves, retained profit brought forward Retained profit Net worth

4 227 827,0 979 357,14

11.2010- 11.2011-10.2012 10.2011 4 393 948,1 5 314 877,8 1 495 254,62 2 765 960,80

11.2012-10.2013 6 813 248,2 4 614 107,68

11.201310.2014 8 426 260,7 6 576 896,68

552 633,35 110 248,81 235 795,27 43 932,37 36 747,34 3 248 469,90 0 3 408 154,00 34 883,00 -194 567,10 0,00 4 227 827,1 11 717,73

692 552,47 143 731,53 302 613,80 45 791,43 310 565,39 2 898 693,44 3 408 154,00 0,00 34 883,00 -544 343,56 0,00 4 393 948,2 14 375,12

784 655,40 162 282,09 341 249,95 48 810,89 1 428 962,47 2 548 916,98 3 408 154,00 0,00 34 883,00 -894 120,02 0,00 5 314 877,9 16 170,29

830 705,04 171 543,44 360 501,99 50 127,70 3 201 229,51 2 199 140,52 3 408 154,00 0,00 34 883,00 -1 243 896,48 0,00 6 813 248,2 17 062,72

876 758,33 180 317,02 379 022,06 51 443,22 5 089 356,05 1 849 364,06 3 408 154,00 0,00 34 883,00 -1 593 672,94 0,00 8 426 260,1 17 957,47

11 717,73

14 375,12

16 170,29

17 062,72

17 957,47

1 312 500,00 2 600 000,00 2 600 000,00 0

437 500,00 2 600 000,00 2 600 000,00 303 609,38

0 2 600 000,00 2 600 000,00 1 342 073,05

0 2 600 000,00 2 600 000,00 2 698 707,62

0 2 600 000,00 2 600 000,00 4 196 185,51

303 609,38

1 038 463,67

1 356 634,57

1 497 477,89

1 612 117,10

4 216 109,31

4 379 572,94

5 298 707,49

6 796 185,48

8 408 303,27

79


4. Balance Sheet 4.1 PROJECTED BALANCE SHEET, concervative view, US dollars 11.2009-10.2010

TOTAL ASSETS Total current assets ~Inventory on materials & supplies ~Finished product ~Accounts receivable ~Cash-in-hand ~Cash surplus, finance available Total fixed assets, net of depreciation ~Fixed investments ~Construction in progress ~Total pre-production expenditures ~Less accumulated depreciation ~Less depreciation allowance TOTAL LIABILITIES Total current liabilities

~Accounts payable Total long-term debt Total equity capital ~Ordinary capital Reserves, retained profit brought forward Retained profit Net worth

4 227 827,0 979 357,14

11.2010- 11.2011-10.2012 10.2011 4 393 948,1 5 314 877,8 1 495 254,62 2 765 960,80

11.2012-10.2013 6 813 248,2 4 614 107,68

11.201310.2014 8 426 260,7 6 576 896,68

552 633,35 110 248,81 235 795,27 43 932,37 36 747,34 3 248 469,90 0 3 408 154,00 34 883,00 -194 567,10 0,00 4 227 827,1 11 717,73

692 552,47 143 731,53 302 613,80 45 791,43 310 565,39 2 898 693,44 3 408 154,00 0,00 34 883,00 -544 343,56 0,00 4 393 948,2 14 375,12

784 655,40 162 282,09 341 249,95 48 810,89 1 428 962,47 2 548 916,98 3 408 154,00 0,00 34 883,00 -894 120,02 0,00 5 314 877,9 16 170,29

830 705,04 171 543,44 360 501,99 50 127,70 3 201 229,51 2 199 140,52 3 408 154,00 0,00 34 883,00 -1 243 896,48 0,00 6 813 248,2 17 062,72

876 758,33 180 317,02 379 022,06 51 443,22 5 089 356,05 1 849 364,06 3 408 154,00 0,00 34 883,00 -1 593 672,94 0,00 8 426 260,1 17 957,47

11 717,73

14 375,12

16 170,29

17 062,72

17 957,47

1 312 500,00 2 600 000,00 2 600 000,00 0

437 500,00 2 600 000,00 2 600 000,00 303 609,38

0 2 600 000,00 2 600 000,00 1 342 073,05

0 2 600 000,00 2 600 000,00 2 698 707,62

0 2 600 000,00 2 600 000,00 4 196 185,51

303 609,38 4 216 109,31

1 038 463,67 4 379 572,94

1 356 634,57 5 298 707,49

1 497 477,89 6 796 185,48

1 612 117,10 8 408 303,27

79


RATIOS Equity to total liabilities (%) Net worth to total liabilities (%) Current assets to current liabilities

61,50

59,17

48,92

38,16

30,86

99,72 83,58

99,67 104,02

99,70 171,05

99,75 270,42

99,79 366,25

4.2 PROJECTED BALANCE SHEET, negative view, US dollars 11.2009-10.2010

11.2011-10.2012

4 210 511,38 962 041,48

11.201010.2011 4 229 243,05 1 330 549,60

~Inventory on materials & supplies ~Finished product ~Accounts receivable ~Cash-in-hand

563 686,03 112 414,09 240 430,71 44 733,33

46 624,84

49 710,64

51 059,67

52 407,52

~Cash surplus, finance available Total fixed assets, net of depreciation

777,32 3 248 469,90

122 391,86 2 898 693,44

1 079 094,32 2 548 916,99

2 678 710,23 2 199 140,53

4 385 410,66 1 849 364,07

0

3 457 754,00

3 457 754,00

3 457 754,00

3 457 754,00

TOTAL ASSETS Total current assets

~Fixed investments ~Construction in progress ~Total pre-production expenditures ~Less accumulated depreciation TOTAL LIABILITIES Total current liabilities ~Accounts payable Total long-term debt Total equity capital ~Ordinary capital Reserves, retained profit brought forward

11.2013-10.2014

4 991 536,83 2 442 619,85

11.201210.2013 6 318 787,38 4 119 646,85

706 403,51 146 564,05

800 348,50 165 488,65

847 319,15 174 938,26

894 293,51 183 890,35

308 565,35

347 977,73

367 619,54

386 514,74

7 751 880,85 5 902 516,78

3 408 154,00

0,00

0,00

0,00

0,00

34 883,00

34 883,00

34 883,00

34 883,00

34 883,00

194 567,10

544 343,56

894 120,01

1 243 896,47

1 593 672,93

4 210 511,38 58 474,79

4 229 243,05 57 445,17

4 991 536,83 63 860,18

6 318 787,38 66 723,66

7 751 880,85 70 241,32

58 474,79 1 312 500,00 2 600 000,00 2 600 000,00

57 445,17 437 500,00 2 600 000,00 2 600 000,00 239 536,59

63 860,18 0 2 600 000,00 2 600 000,00 1 134 297,87

66 723,66 0 2 600 000,00 2 600 000,00 2 327 676,65

70 241,32 0 2 600 000,00 2 600 000,00 3 652 063,72

80



61,50

59,17

48,92

38,16

30,86

99,72 83,58

99,67 104,02

99,70 171,05

99,75 270,42

99,79 366,25

4.2 PROJECTED BALANCE SHEET, negative view, US dollars 11.2009-10.2010

11.2011-10.2012

4 210 511,38 962 041,48

11.201010.2011 4 229 243,05 1 330 549,60

~Inventory on materials & supplies ~Finished product ~Accounts receivable ~Cash-in-hand

563 686,03 112 414,09

~Cash surplus, finance available Total fixed assets, net of depreciation

TOTAL ASSETS Total current assets

~Fixed investments ~Construction in progress ~Total pre-production expenditures ~Less accumulated depreciation TOTAL LIABILITIES Total current liabilities ~Accounts payable Total long-term debt Total equity capital ~Ordinary capital Reserves, retained profit brought forward

11.2013-10.2014

4 991 536,83 2 442 619,85

11.201210.2013 6 318 787,38 4 119 646,85

706 403,51 146 564,05

800 348,50 165 488,65

847 319,15 174 938,26

894 293,51 183 890,35

240 430,71

308 565,35

347 977,73

367 619,54

386 514,74

44 733,33

46 624,84

49 710,64

51 059,67

52 407,52

777,32 3 248 469,90

122 391,86 2 898 693,44

1 079 094,32 2 548 916,99

2 678 710,23 2 199 140,53

4 385 410,66 1 849 364,07

0

3 457 754,00

3 457 754,00

3 457 754,00

3 457 754,00

3 408 154,00

0,00

0,00

0,00

0,00

7 751 880,85 5 902 516,78

34 883,00

34 883,00

34 883,00

34 883,00

34 883,00

194 567,10

544 343,56

894 120,01

1 243 896,47

1 593 672,93

4 210 511,38 58 474,79

4 229 243,05 57 445,17

4 991 536,83 63 860,18

6 318 787,38 66 723,66

7 751 880,85 70 241,32

58 474,79 1 312 500,00 2 600 000,00 2 600 000,00

57 445,17 437 500,00 2 600 000,00 2 600 000,00 239 536,59

63 860,18 0 2 600 000,00 2 600 000,00 1 134 297,87

66 723,66 0 2 600 000,00 2 600 000,00 2 327 676,65

70 241,32 0 2 600 000,00 2 600 000,00 3 652 063,72

80


Retained profit Net worth RATIOS Equity to total liabilities (%) Net worth to total liabilities (%) Current assets to current liabilities

239 536,59

894 761,28

1 193 378,78

1 324 387,06

1 429 575,82

2 839 536,59

3 734 297,87

4 927 676,65

6 252 063,72

7 681 639,54

61,75 67,44 16,45

61,48 88,30 23,16

52,09 98,72 38,25

41,15 98,74 61,74

33,54 99,09 84,03

4.3 PROJECTED BALANCE SHEET, optimistic view, US dollars 11.2009-10.2010 TOTAL ASSETS Total current assets

4 291 659,32 1 043 189,42

~Inventory on materials & supplies ~Finished product ~Accounts receivable ~Cash-in-hand ~Cash surplus, finance available Total fixed assets, net of depreciation ~Fixed investments ~Construction in progress ~Total pre-production expenditures ~Less accumulated depreciation ~Less depreciation allowance TOTAL LIABILITIES Total current liabilities

541 580,70 108 084,34 231 161,44 43 133,12 119 229,83 3 248 469,90

~Accounts payable

11.2010- 11.2011-10.2012 10.2011 4 601 421,32 5 685 561,87 1 702 727,88 3 136 644,89

11.2012-10.2013 7 356 996,04 5 157 855,51

11.201310.2014 9 152 520,95 7 303 156,88

3 408 154,00 34 883,00 194 567,10 0,00 4 291 659,32 11 486,11

678 701,41 140 899,49 296 663,19 44 959,07 541 504,71 2 898 693,44 3 408 154,00 0,00 34 883,00 544 343,56 0,00 4 601 421,32 14 091,00

768 962,29 159 076,00 334 523,11 47 912,21 1 826 171,28 2 548 916,98 3 248 469,90 0,00 34 883,00 894 120,01 0,00 5 685 561,87 14 091,00

814 090,95 168 149,09 353 385,38 49 196,68 3 773 033,41 2 199 140,52 3 248 469,90 0,00 34 883,00 1 243 896,47 0,00 7 356 996,04 16 724,57

859 223,18 176 744,17 371 530,32 50 480,02 5 845 179,20 1 849 364,06 3 248 469,90 0,00 34 883,00 1 593 672,93 0,00 9 152 520,95 16 724,57

11 486,11

14 091,00

14 091,00

16 724,57

16 724,57

81


Retained profit Net worth

239 536,59

894 761,28

1 193 378,78

1 324 387,06

1 429 575,82

2 839 536,59

3 734 297,87

4 927 676,65

6 252 063,72

7 681 639,54

61,75 67,44 16,45

61,48 88,30 23,16

52,09 98,72 38,25

41,15 98,74 61,74

33,54 99,09 84,03


4.3 PROJECTED BALANCE SHEET, optimistic view, US dollars 11.2009-10.2010 TOTAL ASSETS Total current assets

4 291 659,32 1 043 189,42

~Inventory on materials & supplies ~Finished product ~Accounts receivable ~Cash-in-hand ~Cash surplus, finance available Total fixed assets, net of depreciation ~Fixed investments ~Construction in progress ~Total pre-production expenditures ~Less accumulated depreciation ~Less depreciation allowance TOTAL LIABILITIES Total current liabilities

541 580,70 108 084,34 231 161,44 43 133,12 119 229,83 3 248 469,90

~Accounts payable

11.2010- 11.2011-10.2012 10.2011 4 601 421,32 5 685 561,87 1 702 727,88 3 136 644,89

11.2012-10.2013 7 356 996,04 5 157 855,51

11.201310.2014 9 152 520,95 7 303 156,88

3 408 154,00 34 883,00 194 567,10 0,00 4 291 659,32 11 486,11

678 701,41 140 899,49 296 663,19 44 959,07 541 504,71 2 898 693,44 3 408 154,00 0,00 34 883,00 544 343,56 0,00 4 601 421,32 14 091,00

768 962,29 159 076,00 334 523,11 47 912,21 1 826 171,28 2 548 916,98 3 248 469,90 0,00 34 883,00 894 120,01 0,00 5 685 561,87 14 091,00

814 090,95 168 149,09 353 385,38 49 196,68 3 773 033,41 2 199 140,52 3 248 469,90 0,00 34 883,00 1 243 896,47 0,00 7 356 996,04 16 724,57

859 223,18 176 744,17 371 530,32 50 480,02 5 845 179,20 1 849 364,06 3 248 469,90 0,00 34 883,00 1 593 672,93 0,00 9 152 520,95 16 724,57

11 486,11

14 091,00

14 091,00

16 724,57

16 724,57

81


Total long-term debt

1 312 500,00

437 500,00

0

0

0

Total equity capital

2 600 000,00 2 600 000,00

2 600 000,00 2 600 000,00 367 673,21

2 600 000,00 2 600 000,00 1 549 830,32

2 600 000,00 2 600 000,00 3 069 711,72

2 600 000,00 2 600 000,00 4 740 271,47

~Ordinary capital Reserves, retained profit brought forward Retained profit Net worth

367 673,21

1 182 157,10

1 519 881,40

1 670 559,75

1 794 648,22

2 967 673,21

4 149 830,32

5 669 711,72

7 340 271,47

9 134 919,69

Net worth to total liabilities (%)

60,58 69,15

56,50 90,19

45,73 99,72

35,34 99,77

28,41 99,81

Current assets to current liabilities

90,82

120,84

197,89

308,40

414,92

RATIOS Equity to total liabilities (%)

5. Cash Flow of the project 5.1 CASH FLOW FOR FINANCIAL PLANNING, US dollars, conservative view

TOTAL CASH INFLOW Inflow funds -Total equity capital -Total long-term loans -Total short-term finance Inflow operation -Sales revenue Other income TOTAL CASH OUTFLOW Increase in fixed assets Increase in current assets

11.2009 -10.2010 6 743 863,48 4 361 717,73 2 600 000,00 1 750 000,00 11 717,73 2 382 145,75 2 382 145,75 0,00 6 707 116,13 3 443 037,00 942 609,87

11.2010 -10.2011 5 413 129,05 2 657,39 0,00 0,00 2 657,39 5 410 471,66 5 410 471,66 0,00 5 139 310,95 0,00 242 079,41

11.2011 -10.2012 6 168 614,30 1 795,17 0,00 0,00 1 795,17 6 166 819,13 6 166 819,13 0,00 5 050 217,21 0,00 152 309,11

11.2012 -10.2013 6 548 540,18 892,43 0,00 0,00 892,43 6 547 647,76 6 547 647,76 0,00 4 776 273,21 0,00 75 879,80

11.2013 -10.2014 6 914 081,58 894,74 0,00 0,00 894,74 6 913 186,84 6 913 186,84 0,00 5 025 956,42 0,00 74 662,54

Scrap 11.2014-10.2015 3 336 904,80 0,00 0,00 0,00 0,00 0,00 0,00 3 336 904,80 17 957,46 0,00 0,00

82


Total long-term debt

1 312 500,00

437 500,00

0

0

0

Total equity capital

2 600 000,00 2 600 000,00

2 600 000,00 2 600 000,00 367 673,21

2 600 000,00 2 600 000,00 1 549 830,32

2 600 000,00 2 600 000,00 3 069 711,72

2 600 000,00 2 600 000,00 4 740 271,47

~Ordinary capital Reserves, retained profit brought forward Retained profit Net worth

367 673,21

1 182 157,10

1 519 881,40

1 670 559,75

1 794 648,22

2 967 673,21

4 149 830,32

5 669 711,72

7 340 271,47

9 134 919,69

Net worth to total liabilities (%)

60,58 69,15

56,50 90,19

45,73 99,72

35,34 99,77

28,41 99,81

Current assets to current liabilities

90,82

120,84

197,89

308,40

414,92

RATIOS Equity to total liabilities (%)

5. Cash Flow of the project 5.1 CASH FLOW FOR FINANCIAL PLANNING, US dollars, conservative view

TOTAL CASH INFLOW Inflow funds -Total equity capital -Total long-term loans -Total short-term finance Inflow operation -Sales revenue Other income TOTAL CASH OUTFLOW Increase in fixed assets Increase in current assets

11.2009 -10.2010 6 743 863,48 4 361 717,73 2 600 000,00 1 750 000,00 11 717,73 2 382 145,75 2 382 145,75 0,00 6 707 116,13 3 443 037,00 942 609,87

11.2010 -10.2011 5 413 129,05 2 657,39 0,00 0,00 2 657,39 5 410 471,66 5 410 471,66 0,00 5 139 310,95 0,00 242 079,41

11.2011 -10.2012 6 168 614,30 1 795,17 0,00 0,00 1 795,17 6 166 819,13 6 166 819,13 0,00 5 050 217,21 0,00 152 309,11

11.2012 -10.2013 6 548 540,18 892,43 0,00 0,00 892,43 6 547 647,76 6 547 647,76 0,00 4 776 273,21 0,00 75 879,80

11.2013 -10.2014 6 914 081,58 894,74 0,00 0,00 894,74 6 913 186,84 6 913 186,84 0,00 5 025 956,42 0,00 74 662,54

Scrap 11.2014-10.2015 3 336 904,80 0,00 0,00 0,00 0,00 0,00 0,00 3 336 904,80 17 957,46 0,00 0,00

82


Operating costs Marketing costs Income (corporate) tax Financial costs Loan repayment Dividends Equity capital refund SURPLUS (DEFICIT) CUMULATIVE CASH BALANCE

1 649 614,06 952,86 75 902,35 157 500,00 437 500,00 0,00 0,00 36 747,34 36 747,34

3 620 415,79 10 949,83 259 615,92 131 250,00 875 000,00 0,00 0,00 273 818,10 310 565,45

4 082 589,65 12 409,81 339 158,64 26 250,00 437 500,00 0,00 0,00 1 118 397,09 1 428 962,54

4 312 884,14 13 139,80 374 369,47 0,00 0,00 0,00 0,00 1 772 266,97 3 201 229,51

4 534 394,96 13 869,79 403 029,13 0,00 0,00 0,00 0,00 1 888 125,16 5 089 354,67

0,00 0,00 0,00 0,00 17 957,46 0,00 0,00 3 318 947,34 8 408 302,01

5.2 CASH FLOW FOR FINANCIAL PLANNING , US dollars, negative view

TOTAL CASH INFLOW Inflow funds -Total equity capital -Total long-term loans -Total short-term finance Inflow operation -Sales revenue Other income TOTAL CASH OUTFLOW Increase in fixed assets Increase in current assets Operating costs Marketing costs Income (corporate) tax

11.2009 -10.2010 6 742 977,62 4 408 474,79 2 600 000,00 1 750 000,00 58 474,79 2 334 502,83 2 334 502,83 0,00 6 742 200,30 3 443 037,00 961 264,16 1 682 062,13 952,86 59 884,15

11.2010 -10.2011 5 302 262,23 0,00 0,00 0,00 0,00 5 302 262,23 5 302 262,23 0,00 5 180 647,69 0,00 246 893,58 3 691 834,34 10 949,83 223 690,32

11.2011 -10.2012 6 049 897,75 6 415,00 0,00 0,00 6 415,00 6 043 482,75 6 043 482,75 0,00 5 093 195,29 0,00 155 367,78 4 163 323,01 12 409,81 298 344,69

11.2012 -10.2013 6 419 558,29 2 863,48 0,00 0,00 2 863,48 6 416 694,80 6 416 694,80 0,00 4 819 942,38 0,00 77 411,10 4 398 294,71 13 139,80 331 096,77

11.2013 -10.2014 6 778 440,75 3 517,65 0,00 0,00 3 517,65 6 774 923,10 6 774 923,10 0,00 5 071 740,32 0,00 76 169,50 4 624 307,08 13 869,79 357 393,96

Scrap 11.2014-10.2015 3 366 470,19 0,00 0,00 0,00 0,00 0,00 0,00 3 366 470,19 70 241,32 0,00 0,00 0,00 0,00 0,00

83


Operating costs Marketing costs Income (corporate) tax Financial costs Loan repayment Dividends Equity capital refund SURPLUS (DEFICIT) CUMULATIVE CASH BALANCE

1 649 614,06 952,86 75 902,35 157 500,00 437 500,00 0,00 0,00 36 747,34 36 747,34

3 620 415,79 10 949,83 259 615,92 131 250,00 875 000,00 0,00 0,00 273 818,10 310 565,45

4 082 589,65 12 409,81 339 158,64 26 250,00 437 500,00 0,00 0,00 1 118 397,09 1 428 962,54

4 312 884,14 13 139,80 374 369,47 0,00 0,00 0,00 0,00 1 772 266,97 3 201 229,51

4 534 394,96 13 869,79 403 029,13 0,00 0,00 0,00 0,00 1 888 125,16 5 089 354,67

0,00 0,00 0,00 0,00 17 957,46 0,00 0,00 3 318 947,34 8 408 302,01

5.2 CASH FLOW FOR FINANCIAL PLANNING , US dollars, negative view

TOTAL CASH INFLOW Inflow funds -Total equity capital -Total long-term loans -Total short-term finance Inflow operation -Sales revenue Other income TOTAL CASH OUTFLOW Increase in fixed assets Increase in current assets Operating costs Marketing costs Income (corporate) tax

11.2009 -10.2010 6 742 977,62 4 408 474,79 2 600 000,00 1 750 000,00 58 474,79 2 334 502,83 2 334 502,83 0,00 6 742 200,30 3 443 037,00 961 264,16 1 682 062,13 952,86 59 884,15

11.2010 -10.2011 5 302 262,23 0,00 0,00 0,00 0,00 5 302 262,23 5 302 262,23 0,00 5 180 647,69 0,00 246 893,58 3 691 834,34 10 949,83 223 690,32

11.2011 -10.2012 6 049 897,75 6 415,00 0,00 0,00 6 415,00 6 043 482,75 6 043 482,75 0,00 5 093 195,29 0,00 155 367,78 4 163 323,01 12 409,81 298 344,69

11.2012 -10.2013 6 419 558,29 2 863,48 0,00 0,00 2 863,48 6 416 694,80 6 416 694,80 0,00 4 819 942,38 0,00 77 411,10 4 398 294,71 13 139,80 331 096,77

11.2013 -10.2014 6 778 440,75 3 517,65 0,00 0,00 3 517,65 6 774 923,10 6 774 923,10 0,00 5 071 740,32 0,00 76 169,50 4 624 307,08 13 869,79 357 393,96

Scrap 11.2014-10.2015 3 366 470,19 0,00 0,00 0,00 0,00 0,00 0,00 3 366 470,19 70 241,32 0,00 0,00 0,00 0,00 0,00

83


Financial costs Loan repayment Dividends Equity capital refund SURPLUS (DEFICIT) CUMULATIVE CASH BALANCE

157 500,00 437 500,00 0,00 0,00 777,32 777,32

131 250,00 876 029,61 0,00 0,00 121 614,54 122 391,86

26 250,00 437 500,00 0,00 0,00 956 702,46 1 079 094,32

0,00 0,00 0,00 0,00 1 599 615,91 2 678 710,23

0,00 0,00 0,00 0,00 1 706 700,43 4 385 410,66

0,00 70 241,32 0,00 0,00 3 296 228,88 7 681 639,54

5.3 CASH FLOW FOR FINANCIAL PLANNING, US dollars, Optimistic view

TOTAL CASH INFLOW Inflow funds -Total equity capital -Total long-term loans -Total short-term finance Inflow operation - Sales revenue Other income TOTAL CASH OUTFLOW Increase in fixed assets Increase in current assets Operating costs Marketing costs Income (corporate) tax Financial costs Loan repayment Dividends

11.2009 -10.2010 6 791 274,77 4 361 486,11 2 600 000,00 1 750 000,00 11 486,11 2 429 788,66 2 429 788,66 0,00 6 672 044,94 3 443 037,00 923 959,59 1 617 177,19 952,86 91 918,30 157 500,00 437 500,00 0,00

11.2010 -10.2011 5 521 285,99 2 604,89 0,00 0,00 2 604,89 5 518 681,10 5 518 681,10 0,00 5 099 011,10 0,00 237 263,57 3 549 008,43 10 949,83 295 539,28 131 250,00 875 000,00 0,00

11.2011 -10.2012 6 291 914,66 1 759,15 0,00 0,00 1 759,15 6 290 155,51 6 290 155,51 0,00 5 007 248,09 0,00 149 250,44 4 001 867,49 12 409,81 379 970,35 26 250,00 437 500,00 0,00

11.2012 -10.2013 6 679 475,13 874,42 0,00 0,00 874,42 6 678 600,71 6 678 600,71 0,00 4 732 613,00 0,00 74 348,50 4 227 484,77 13 139,80 417 639,94 0,00 0,00 0,00

11.2013 -10.2014 7 052 327,27 876,69 0,00 0,00 876,69 7 051 450,57 7 051 450,57 0,00 4 980 181,48 0,00 73 155,58 4 444 494,05 13 869,79 448 662,06 0,00 0,00 0,00

Scrap 11.2014-10.2015 3 307 341,75 0,00 0,00 0,00 0,00 0,00 0,00 3 307 341,75 17 601,26 0,00 0,00 0,00 0,00 0,00 0,00 17 601,26 0,00

84


Financial costs Loan repayment Dividends Equity capital refund SURPLUS (DEFICIT) CUMULATIVE CASH BALANCE

157 500,00 437 500,00 0,00 0,00 777,32 777,32

131 250,00 876 029,61 0,00 0,00 121 614,54 122 391,86

26 250,00 437 500,00 0,00 0,00 956 702,46 1 079 094,32

0,00 0,00 0,00 0,00 1 599 615,91 2 678 710,23

0,00 0,00 0,00 0,00 1 706 700,43 4 385 410,66

0,00 70 241,32 0,00 0,00 3 296 228,88 7 681 639,54

5.3 CASH FLOW FOR FINANCIAL PLANNING, US dollars, Optimistic view

TOTAL CASH INFLOW Inflow funds -Total equity capital -Total long-term loans -Total short-term finance Inflow operation - Sales revenue Other income TOTAL CASH OUTFLOW Increase in fixed assets Increase in current assets Operating costs Marketing costs Income (corporate) tax Financial costs Loan repayment Dividends

11.2009 -10.2010 6 791 274,77 4 361 486,11 2 600 000,00 1 750 000,00 11 486,11 2 429 788,66 2 429 788,66 0,00 6 672 044,94 3 443 037,00 923 959,59 1 617 177,19 952,86 91 918,30 157 500,00 437 500,00 0,00

11.2010 -10.2011 5 521 285,99 2 604,89 0,00 0,00 2 604,89 5 518 681,10 5 518 681,10 0,00 5 099 011,10 0,00 237 263,57 3 549 008,43 10 949,83 295 539,28 131 250,00 875 000,00 0,00

11.2011 -10.2012 6 291 914,66 1 759,15 0,00 0,00 1 759,15 6 290 155,51 6 290 155,51 0,00 5 007 248,09 0,00 149 250,44 4 001 867,49 12 409,81 379 970,35 26 250,00 437 500,00 0,00

11.2012 -10.2013 6 679 475,13 874,42 0,00 0,00 874,42 6 678 600,71 6 678 600,71 0,00 4 732 613,00 0,00 74 348,50 4 227 484,77 13 139,80 417 639,94 0,00 0,00 0,00

11.2013 -10.2014 7 052 327,27 876,69 0,00 0,00 876,69 7 051 450,57 7 051 450,57 0,00 4 980 181,48 0,00 73 155,58 4 444 494,05 13 869,79 448 662,06 0,00 0,00 0,00

Scrap 11.2014-10.2015 3 307 341,75 0,00 0,00 0,00 0,00 0,00 0,00 3 307 341,75 17 601,26 0,00 0,00 0,00 0,00 0,00 0,00 17 601,26 0,00

84


Equity capital refund SURPLUS (DEFICIT) CUMULATIVE CASH BALANCE

0,00 119 229,83 119 229,83

0,00 422 274,88 541 504,71

0,00 1 284 666,57 1 826 171,28

0,00 1 946 862,13 3 773 033,41

0,00 2 072 145,78 5 845 179,20

0,00 3 289 740,49 9 134 919,69

85


Equity capital refund SURPLUS (DEFICIT) CUMULATIVE CASH BALANCE

0,00 119 229,83 119 229,83

0,00 422 274,88 541 504,71

0,00 1 284 666,57 1 826 171,28

0,00 1 946 862,13 3 773 033,41

0,00 2 072 145,78 5 845 179,20

0,00 3 289 740,49 9 134 919,69

85


6. Payback period of the project

The payback period equal to 3,48 year (2013) in conservative view.

The payback period equal to 3,75 year (2013) in negative view.


6. Payback period of the project

The payback period equal to 3,48 year (2013) in conservative view.

The payback period equal to 3,75 year (2013) in negative view.


The payback period equal to 3,24 year (2013 year) in optimistic view:


7. IRR on total capital invested

IRR equal to 40,07% in the conservative view. The sensitivity of IRR is shown below:

IRR equal to 35,22% in the negative view. The sensitivity of IRR is shown below:


IRR equal to 45,50% in the optimistic view. The sensitivity of IRR is shown below:


8. NPV on total capital invested

NPV on total capital invested is equal to 1 653 273,56 US dollars in conservative view:

NPV on total capital invested is equal to 1 258 726,26 US dollars in negative view:


NPV on total capital invested is equal to 2 067 739,95 US dollars in optimistic view:


VI. Qualitative Analysis 1. SWOT Analysis of this project

2. Five forces Analysis (Competitiveness Analysis)

In carrying out an industry analysis, Company needs to examine the forces that will influence its business and to address these forces well before Company’s competitors in order to gain a competitive advantage. Company used a Michael Porter framework that provides an outline of the primary external forces that determine competitiveness within the PP bag industry and how they will relate to the Company. This framework suggests how to develop effective organizational strategies. Company needs to first understand and subsequently react to five primary external forces to create a competitive advantage within the industry.


Porter’s five forces are as follows: SUPPLIER POWER -The bargaining power of suppliers BUYER POWER -The bargaining power of buyers BARRIERS TO ENTRY - The threat of potential new entrance SUBSTITUTION- The threat of substitutes INDUSTRY RIVALRY - The extent of competitive rivalry

The objective of ‘5 Forces’ analysis is to show how Company’s business needs to form its strategy in order to develop opportunities in its environment and protect business against competition and other threats.


3. Other Risk Assessment

The global crisis lays bare the fundamental vulnerabilities that exist in the economy of Azerbaijan. While its remoteness from global financial markets protected it from turmoil in the short-term, in the long-term it exposed an underdeveloped financial landscape, which hampers monetary policy and constrains external borrowing. The oil boom has brought an enormous windfall to a small country but the benefits of this wealth are unevenly distributed with 16% of the population still living below the poverty line. And most importantly the crisis alerts to the overdependence of the economy on the oil sector and revenues from carbohydrates as well as the unsustainable economics of SOEs. There are several key measures that can help mitigate the negative impact of a global recession and bolster the economy to capture future growth opportunities. Diversification – reduce the country’s over-reliance on exports of commodities by

supporting the production of processed goods with higher value added. Stimulate growth in other sectors, such as telecommunications, IT and business services by creating attractive tax regimes for start-ups and rehashing the legal base to guarantee contract enforcement. Supply side – increase overall output and productivity by eliminating the inefficiencies

of SOEs. Discourage monopolistic behavior to facilitate the benefits transfer of declining commodity prices through to the consumers in Azerbaijan. Reduce tariffs on trade to normalize retail prices and fuel domestic consumption. Competition – support the development of open, transparent and competitive markets

by liberalizing the regulatory environment. Promote such measures to counter the shadow economy, which according to government sources amounts to 20% of legitimate GDP. Encourage FDI flows into the non-oil sector by nurturing a healthy consumer market. Education – encourage the development and implementation of specialized training, IT,

engineering and business programs, through public, such as the University of Azerbaijan, and private channels to strengthen workforce skills, facilitate entrepreneurship, and expedite the dissemination of oil revenues throughout the regions. Growth in emerging markets like Azerbaijan is stalling. Uncertainty about the future of commodity prices undermines all economic forecasts. It is clear however that as its key trading partners suffer the country will export less at lower prices. Budget revenues will decline leading to a decrease in the state’s huge reserves. Banks will borrow and lend less, dampening private initiative even more. In a monopolistic environment the effects of disinflation are unlikely to be passed down to the consumers, leaving the poorest 20% even more so. It might be tempting to put the blame for the slowdown on someone else, citing external economic factors. Should this attitude prevail there will be few structural changes in the economy and the oil windfall will be lost upon the younger generation. A more commendable approach and one that would, not only make Mr Aslan happy, but convert Azerbaijan from a rich but systemically poor


country into a prosperous state is to take the advice of its Turkish neighbor – that is to liberalize. Curbing Price Increases

Until recently the government has been pursuing an expansionary fiscal policy, increasing public spending to finance among other things defense, infrastructure, and public sector wages and pensions. Strong foreign currency inflows and the prevalence of fiscal over monetary policy due to limited exchange rate flexibility created strong inflationary pressures in the economy. In 2008 inflation topped 20% causing sharp price increases. Although the National Bank of Azerbaijan (NBA) is committed to ensuring price stability as a means to sustaining output and employment, it is constricted in its ability to control money supply. In December the discount rate was further reduced by two percentage points in a series of cuts to 8% from a high of 15% in September 2008. Given high inflation levels the rate will remain negative in real terms until further adjustments. Falling commodity prices should trigger disinflation in Azerbaijan but it will go largely unnoticed in a monopolistic environment. A depreciation of the Manat is expected in the context of a stronger dollar. In response the NBA has changed the composition of the exchange rate basket, increasing the weight of the euro from 30% to 50%, to avoid hurting exporters in the non-oil sector. Amid greater risk aversion towards emerging markets and low levels of external financing, the NBA reduced the reserve requirements for commercial banks from 12% to 9% to stimulate lending. Fewer scruples in giving out loans may lead to the deterioration in the banks’ asset portfolio as real estate prices deflate causing a decline in the value of collateral. The government of Azerbaijan prepared an emergency 400AZN million bank rescue package, of which 50AZN million has already gone to UniBank to help it meet debt service requirements. Falling commodity prices will lead to lower currency inflows and a tighter fiscal policy as the government attempts to cut spending. Anti-crisis conception of Azerbaijan Republic

Proposed action plans on each economic sector: Entrepreneurship: •

• •

•

• •

Increasing financial assistance (credits) to entrepreneurs through the National Fund on Support to Entrepreneurship. It is would better to increase an amount of credit to entrepreneurs from 130 million AZN to 250 million AZN for 2009. To decrease credit percentage of banks to entrepreneurs from 7% to 4%. To increase the amount of credit to entrepreneurs from 3 million AZN to 5 million AZN. To involve NGOs and civil society to the process of giving credits to entrepreneurs, in order to ensure efficiency and transparency of the process To strengthen combat against monopoly. To strengthen combat against “artificial” increase of prices.

PP Woven Bag Production Business plan •

• • • •

To accelerate the process of establishing free economic zones in order to attract more international investments. To support private companies involved in construction sector. To remove bureaucracy in documentation procedure while starting construction. To stimulate export of national products. To accept “Competition Code”.

Banking sector: •

•

•

•

• •

To replace a portion of state reserves in commercial banks of Azerbaijan. It is proposed to replace 4 billion USD to the local banks. To decrease the interest rate of the Central Bank to 1% by letting the commercial banks to increase their liquidity. To reconsider the monetary policy of Central Bank, in order to prevent risk of devaluation by decreasing AZN rate by 10% against USD. To use psychological methods in order to increase the trust of population to banks. To increase an amount rate of secured deposits of population To re-introduce mortgage loans by the expense of the State Budget.

Tax sector: •

•

To decrease tax rates: Profit tax from 22% to 20%; VAT from 18% to 16%; Simplified tax from 4% to 2% in Baku and from 2% to 1% in regions. To assist and encourage local enterprises by reducing tax rates.

Finance and budget sector: •

• • • •

•

To make changes to the Budget for 2009 by decreasing setted oil price for one barrel from $70 to $50. To cut some budgetary expenses on the basis of changed oil price. To strengthen financial control. To conduct “Expense-Income Analysis” on budget sponsored projects. To allocate approx. 380 million AZN from the State Budget for financing anticrisis activities To economize the spending of budgetary incomes.

Agricultural sector: •

• •

• •

•

To increase export potential of agricultural enterprises. Unfortunately, only 1% of the country’s annual export falls in this sector. To provide access of farmers to information resources. To develop a report system regarding the how to use credits ot National Fund on Support to Enterpreneurship. To increase the volume of subsidies to farmers. To remove some barriers in ensuring delivery of agricultural products to Baku markets. To build agricultural storages.


Some of above mentioned proposals of Anti Crisis Conception were approved by the Azerbaijan National Parliament. Azerbaijan Parliament approved amendments on Tax Code of Azerbaijan Republic. As earlier Center for Economic and Social Development (CESD) presented policy recommendations to decrease profit tax from 22 % to 20 %, to decrease maximum tax rate for income tax, to change simplified tax system and etc. Azerbaijani Parliament approved CESD recommendations on tax system on June, 19, 2009. Central Bank of Azerbaijan slashes refinancing rate to 2%. The Central Bank of Azerbaijan (CBA) has passed a decision to cut the refinancing rate to 2% from 3%, reducing the interest rate ceiling to 7% from 8% and leaving the interest rate floor unchanged at 1% effective May 25. The move was intended to soften monetary policy to protect and support the macroeconomic equilibrium, financial stability and economic performance amid deflation trends, the CBA said in a statement. On March 2, the central bank cut the refinancing rate to 3% from 5%, slashed the interest rate ceiling to 8% from 10% and leaft the interest rate floor unchanged at 1%. Under the March 2 decision, the central bank also cut its mandatory reserve requirements for commercial banks in both home and foreign currency to 0.5% from 3%. In the face of deepening global economic crisis and liquidity problem, the central bank has to date cut the refinancing rate by 13 percentage points to 2% from 15% at stages since October, 2008. Financing & Banking system

The banking sector was in track with dynamic development and maintained financial stability in 2008. Banking sector growth parameters have been in line with the stabilization of the overall growth dynamics of the economy last year. Banking sector assets increased by 47 percent with credit growing 48 percent and household savings increasing by 23 percent in the eleven months of this year. For the first quarter of the 2009 year the assets of banks decreased 14,48%, deposits of customers decreased 16%, profitability decreased 73,70% and credit portfolio decreased 13,56%. The rating of the banks are shown below: Assets of the banks Name of the bank 1 2 3 4 5 6 7 8

International Bank of Azerbaijan Bank Standard Texnikabank Bank Respublika Xalq Bank Unibank Kapital Bank Nikoil Bank

(Million manat) March 2009

2008

Inc./dec, %

3 308 797 539 286 431 483 386 192 386 153 374 181 341 524 289 249

4 369 751 619 085 450 099 387 875 403 710 417 563 577 590 294 705

-24,28% -12,89% -4,14% -0,43% -4,35% -10,39% -40,87% -1,85%

PP Woven Bag Production Business plan 9 AccessBank 10 Azerdemiryolbank

229 790 213 029

198 863 228 526

15,55% -6,78%

The rating of the first ten banks by deposits of the customers are shown below: Deposits of customers Name of the bank 1 2 3 4 5 6 7 8 9 10

International Bank of Azerbaijan Bank Standard Xalq Bank Kapital Bank Bank Respublika Texnikabank AtaBank AGBank Bank of Azerbaijan PASHA Bank

(Million manat) March 2009

2008

Inc./dec, %

1 236 743 431 473 270 475 174 914 140 041 129 811 124 604 105 042 96 841 90 428

1 773 026 191 812 298 324 227 572 135 815 398 534 109 303 100 085 42 489 42 525

-30% 125% -9% -23% 3% -67% 14% 5% 128% 113%

Profitability of the banks 1 2 3 4 5 6 7 8 9 10

Name of the bank International Bank of Azerbaijan Bank Standard Texnikabank Bank Respublika Kapital Bank Unibank AccessBank Nikoil Bank Xalq Bank Bank of Baku

(Million manat)

March 2009 102 233 21 765 19 513 17 655 15 860 15 643 14 185 11 315 9 908 9 757

2008 390 135 98 480 73 779 59 079 57 911 78 443 46 394 33 940 47 172 41 073

Inc./dec, % -73,80% -77,90% -73,55% -70,12% -72,61% -80,06% -69,42% -66,66% -79,00% -76,24%

Credit portfolio Name of the bank 1 2 3 4 5 6 7 8 9 10

International Bank of Azerbaijan Bank Standard Xalq Bank Texnikabank Unibank Bank Respublika Nikoil Bank Kapital Bank Azerdemiryolbank AGBank

March 2009

2 393 750 383 904 341 894 334 768 299 024 248 867 235 175 168 059 157 354 156 638

2008 Inc./dec, %

-21,42% -2,67% -5,20% -3,33% -9,88% -5,27% 49,12% -54,06% -6,67% 0,36%

3 046 339 394 421 360 648 346 299 331 824 262 718 157 710 365 847 168 592 156 074


Rating service Standard & Poor's has published report on bank system of the Azerbaijan Republic - «the Analysis of risks of bank sector: the young bank system of Azerbaijan is more and more submitted to influence of the international crisis» (01 June 2009). Rating service Standard & Poor's considers, that the bank system of this country is vulnerable to possible deterioration of credit status and liquidity after several years of very fast growth owing to high industry and economic risks to which the young bank system of the country is exposed. The bank system of the Azerbaijan Republic (ВВ +/Stable/B) is characterized by high level dollarization, dependence of economy on an oil recovery, concentration of banks on separate borrowers and industries, and also weak practice of risk-management. At the same time it is necessary to note that quite good prospects of macroeconomic growth in intermediate term prospect, low dependence of banks on foreign loans and speculative operations, and also adequate level of capitalization and financial indicators of bank system. For these reasons the bank system of Azerbaijan is to a lesser degree subject till now to influence of a world economic crisis, than bank systems of many other things of the CIS countries. However it remains vulnerable to possible negative changes of the macroeconomic environment that represents high risk in the international context. The evaluation of banks and country risks testifies this (so-called evaluation BICRA). Azerbaijan is carried to group 9 (from 10 groups; the strongest are included into group 1, and the weakest - in group 10). The leading position in bank sector occupies the largest state bank - the International bank of Azerbaijan, which share in actives of bank system makes 43 %. There are about 45 private banks. The share of each of does not exceed 7 % of the market. Still recently Azerbaijan took the leading place in region on attraction of direct foreign investments. However they were distributed non-uniformly between sectors of the economy dominating in which the oil branch (its share in gross national product made 60 % in 2008) is. The investment environment is rather sensitive and dependent on political stability, adherence of the government to carrying out of reforms and proceeding growth of gross national product. For the end of 2008 49 % of all credits of system have been nominated in a foreign currency that underlines dependence of quality of actives of the Azerbaijan banks from improbable, but possible devaluation of national currency.


VII Further step study 1. Next step after the mature of PP woven bag

Suggested next steps after the mature of PP bag are shown below: To determine the neighbor industries; Select the one of searched industries to use free capacity; Adjustment of operations to new field of industry. 2. Neighbor industrial fields to PP bag business

PP packing final consumer goods HDPE bag production industry- T-Shirt bags LDPE bag production industry Bottle packing shrink production

   

3. What is necessary for being ready for the next biz and its timing?

Determine new target markets and market segments; Determine the requirements of target markets; Analizy the competitors in the market; Production Technology, capacities & price competitivenes

   

of 

The Key Success Factors in penetrating in this market

This issues will be done after payback period of production PP wowen bag for grain and sugar.

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