45. PROFILE ON PRODUCTION OF SODIUM SILICATE
45-2 TABLE OF CONTENTS
PAGE
I.
SUMMARY
45-3
II.
PRODUCT DESCRIPTION & APPLICATION
45-3
III.
MARKET STUDY AND PLANT CAPACITY
45-4
A. MARKET STUDY
45-4
B. PLANT CAPACITY & PRODUCTION PROGRAMME
45-6
MATERIALS AND INPUTS
45-7
A. RAW MATERIALS
45-7
B. UTILITIES
45-8
TECHNOLOGY & ENGINEERING
45-9
A. TECHNOLOGY
45-9
B. ENGINEERING
45-10
MANPOWER & TRAINING REQUIREMENT
45-11
A. MANPOWER REQUIREMENT
45-11
B. TRAINING REQUIREMENT
45-12
FINANCIAL ANALYSIS
45-12
A. TOTAL INITIAL INVESTMENT COST
45-12
B. PRODUCTION COST
45-13
C. FINANCIAL EVALUATION
45-14
D. ECONOMIC BENEFITS
45-15
IV.
V.
VI.
VII.
I.
45-3 SUMMARY
This profile envisages the establishment of a plant for the production of sodium silicate with a capacity of 1,350 tonnes per annum.
The present demand for the proposed product is estimated at 1,500 tonnes per annum. The demand is expected to reach at 2,828 tonnes by the year 2020.
The plant will create employment opportunities for 20 persons.
The total investment requirement is estimated at Birr 3.69 million, out of which Birr 990,900 is required for plant and machinery.
The project is financially viable with an internal rate of return (IRR) of 30 % and a net present value (NPV) of Birr 5.31 million, discounted at 8.5%.
II.
PRODUCT DESCRIPTION AND APPLICATION
Sodium silicate is one of various water soluble substances obtained in the form of crystals, glasses, powder or aqueous solutions by chemical fusion of silica sand and soda ash. At present, there are 40 varieties of commercial sodium silicate, each with a specific use.
Sodium silicate is an essential raw material in the manufacture of washing soap, ceramic wares, flooring and metal foils, paper boards and corrugated containers, wall board etc. Vitreous silica compounds (glass bottles and tumblers) are also produced in a suction fed type blowing machine.
45-4
III.
MARKET STUDY AND PLANT CAPACITY
A.
MARKET STUDY
1.
Past Supply and Present Demand
Although sodium silicate has got various applications, in Ethiopia Soap and Detergent Factories are the major consumers. The Pulp and Paper Factories also require Sodium Silicate for hardening corrugated paper board and packaging materials.
Factories
which produce pigments and adhesive and water treatment plants are among significant users of the product in Ethiopia.
As there is no domestic production of sodium silicate, supply of the product is entirely constituted by import ( see Table 3.1). Table 3.1 IMPORT OF SODIUM SILICATE (1995-2004) Year
Source:
Import (Tonnes)
1995
538.6
1996
533.2
1997
183.0
1998
77.0
1999
241.6
2000
80.6
2001
800.0
2002
2,946.6
2003
557.1
2004
1,070.2
2005
2,366.7
2006
2339.9
Customs Authority, External Trade Statistics annual issues.
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Table 3.1 shows that import of sodium is characterized by year to year fluctuation. The highest import, 2366.7 tonnes, was made in 2006 while the lowest 77 tonns was in year 1998. To estimate the present demand for the product the apparent consumption, which is considered to be a fair approximation of demand, is used. Accordingly, the apparent consumption of the product (i.e. import) during the last four years, which is about 1,500 tonnes, is considered to reasonably reflect present demand for sodium silicate.
2.
Projected Demand
The future demand for sodium silicate is a function of growth of the end-user industries, mainly soap and detergent factories, pulp and paper mills, paint, pigment and adhesive factories. Information obtained from Ethiopian Investment Authority give strong indication that private investment in the aforementioned industries is bound to grow. Hence, a modest growth rate of 5% would not be unwarranted to forecast future demand. The demand forecast executed accordingly is shown in Table 3.2. Table 3.2 PROJECTED DEMAND FOR SODIUM SILICATE Forecasted Demand Year
(Tonnes)
2008
1,575
2009
1,654
2010
1,736
2011
1,823
2012
1,914
2013
2,010
2014
2,111
2015
2,216
2016
2,327
2017
2,443
2018
2,566
2019
2,694
2020
2,828
3.
45-6 Pricing and Distribution
Based on current market price of the product and assuming margins for distributors, a factory-gate price of Birr 3000 per tonne is recommended for the envisaged plant. The product can be directly supplied to end-users.
B.
PLANT CAPACITY AND PRODUCTION PROGRAMME
1.
Plant Capacity
Based on the market study and nature of the plant, a capacity of 4.5 tonnes per day is considered. On the basis of double shifts of 8 hours per day and 300 days per annum, the total annual production would then be 1350 tonnes of sodium silicate.
2.
Production Programme
Table 3.3 shows the production programme of the envisaged project. It is prepared based on the selected plant capacity and expected market share to be captured by the project.
At the initial stage of production, the plant may require some years to
penetrate into the market. Therefore, the plant initially will operate at 75% of its rated annual capacity. During the second year the plant will operate at 85%, reaching 100% capacity utilization in the third year and thereafter.
45-7 Table 3.3 PRODUCTION PROGRAMME
Year
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Projected
Production
Capacity
Demand
Demand
Programme
Utilization
Coverage
(Tonnes)
(Tonnes)
(%)
(%)
1,575 1,654 1,736 1,823 1,914 2,010 2,111 2,216 2,327 2,443 2,566 2,694 2,828
1,013 1,148 1,350 1,350 1,350 1,350 1,350 1,350 1,350 1,350 1,350 1,350 1,350
75 85 100 100 100 100 100 100 100 100 100 100 100
85.7 81.6 77.8 74.1 70.5 67.2 64.0 60.9 58.0 55.3 52.6 50.1 47.7
IV
MATERIALS AND INPTUS
A.
RAW MATERIALS
The major raw materials required for the production of sodium silicate are soda ash and sand. Soda ash will be supplied from domestic sources and that of Silica sand is abundant along the course of main rivers, found in the region.
The annual
requirement for raw materials at 100% capacity utilization and associated estimated cost are given in Table 4.1.
45-8 Table 4.1 ANNUAL RAW MATERIAL REQUIREMENT AND COST
Sr. No.
Description
1
Soda Ash
2
Sand
Quantity
Unit Cost
Cost (‘OOO
(Tonnes)
(Birr)
Birr)
1,125
1,500
1,687.5
675
103.33
69.75
Total
B.
1,757.25
UTILITIES
Electricity, water and furnace oil are the major utilities required by the plant. The total annual requirement at 100% capacity utilization rate and the estimated costs are given in Table 4.2 below.
Table 4.2 UTILITIES REQUIREMENT AND ESTIMATED COST
Sr. No.
Description
Units
Quantity
Cost ( Birr)
1
Electricity
KWh
37,375
17,700.8
2
Furnace Oil
Lit
100,000
541,000
3
Water
M
1250
6,875
3
Total
565,575.8
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V.
TECHNOLOGY AND ENGINEERING
A.
TECHNOLOGY
1.
Production Process
Sodium silicate is made by fusing sodium carbonate and silica sand in an open hearth furnace.
In most common commercial silicates, the ratio of sodium carbonate to
silica, on molar basis, varies from 1:2 to 1:3.2.
Intermediate compositions are obtained by mixing, and more alkaline ratios by addition of caustic soda. The product, upon cooling, forms clear light bluish green glass. In all cases, carbon dioxide comes out as a by-product. Sodium silicate could be sold as a solution where the product is ground and dissolved in water or by steam when the ratio of silica to alkali is above two. The plant does not emit any pollutant rejects to the environment.
2.
Source of Technology
The machinery and equipment for the plant can be acquired from the following company which is specialized in manufacturing of chemical plants.
YATAI CHEMICAL PLANTS MANUFACTURER No. 9 Qingchun Road, hangzhou, Zhejiang, China Tel: +86-571-87228882, +86-571- 87228886 Fax: +86-571-87242887
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B.
ENGINEERING
1.
Machinery and Equipment
The list of major machinery and equipment for production of sodium silicate is indicated in Table 5.1. The total cost of machinery is estimated at Birr 1,296,640 of which Birr 990,900 is required in foreign currency.
Table 5.1 LIST OF MACHINERY AND EQUIPMENT REQUIRED Sr.
Description
Unit
Qty
No.
2.
1
Furnace
Pcs
1
2
Autoclave
Pcs
1
3
Crusher
Pcs
1
4
Grinder
Pcs
1
5
Tank
Pcs
1
6
Pump
Pcs
2
7
Boiler
Pcs
2
8
Generator
Pcs
1
9
Weighing Hoppers
Pcs
2
Building and Civil Works 2
2
The total area of the project is 2,000 m of which 850 m is a built-up area. The cost 2
of building of which at unit cost of Birr 1,800 per m is, thus, estimated at Birr 1.53 2
million. The lease value of land at a rate of 0.1 Birr per m for 80 years is about Birr 16,000. 3.
Proposed Location
The location of the proposed project is recommended to be in Beftu Town, located in Benchmaji zone, Guraferedea woreda relatively nearer to the source of soda ash, which is the major raw material. The proposed place has access to infrastructure and
45-11
utilities like electricity, water & fuel. Sand could be made available from the zone very easily. VI
MANPOWER AND TRAINING REQUIREMENT
A.
MANPOWER REQUIREMENT
The total manpower required by the plant is 20 persons.
Details of manpower
requirement are given in Table 6.1. The total annual cost of labour is estimated at Birr 273, 6000. Table 6.1 MANPOWER REQUIREMENT AND ANNUAL LABOUR COST
Sr.
Job Title
No. of
No.
Salary (Birr)
Person Monthly Salary
Annual Salary
1
Plant Manager
1
2,750
33,000
2
Chemist
3
1,600
57,600
3
Secretary
1
850
10,200
4
Salesman
1
750
9,000
5
Accountant
1
900
10,800
6
Personnel
1
1,200
14,400
7
Shift Leader
1
1,300
15,600
8
Operator
5
600
36,000
9
Store Keeper
1
750
9,000
10
Purchaser
1
750
9,000
11
Mechanic
1
800
9,600
12
Driver
1
550
6,600
13
Guard
2
300
7,200
Sub total
20
19,000
228,000
-
3,800
45,600
-
22,800
273,600
Employees’
Benefit
(20% of Basic Salary) Total
B.
45-12 TRAINING REQUIREMENT
Nine operators and a shift leader should be given a one week on -the-job training during plant erection and commissioning by the experts of the machinery supplier. The cost of training is estimated at Birr 20,000.
VII.
FINANCIAL ANALYSIS
The financial analysis of the sodium silicate project is based on the data presented in the previous chapters and the following assumptions:-
Construction period
1 year
Source of finance
30 % equity 70 % loan
Tax holidays Bank interest
3 years 8%
Discount cash flow
8.5%
Accounts receivable
30 days
Raw material local
30days
Raw material, import
90days
Work in progress
5 days
Finished products
30 days
Cash in hand
5 days
Accounts payable
30 days
A.
TOTAL INITIAL INVESTMENT COST
The total investment cost of the project including working capital is estimated at Birr 3.69 million, of which 21 per cent will be required in foreign currency.
The major breakdown of the total initial investment cost is shown in Table 7.1.
45-13 Table 7.1 INITIAL INVESTMENT COST
Sr.
Total Cost
No.
Cost Items
(‘000 Birr)
1
Land lease value
16.0
2
Building and Civil Work
3
Plant Machinery and Equipment
990.9
4
Office Furniture and Equipment
75.0
5
Vehicle
225.0
6
Pre-production Expenditure*
315.1
7
Working Capital
537.3
1,530.0
Total Investment cost
3,689.3
Foreign Share
*
N.B
Pre-production
expenditure
includes
21
interest
during
construction
(Birr
215.03
thousand) training (Birr 20 thousand ) and Birr 80 thousand costs of registration, licensing and formation of the company including legal fees, commissioning expenses, etc.
B.
PRODUCTION COST
The annual production cost at full operation capacity is estimated at Birr 3.13 million (see Table 7.2).
The material and utility cost accounts for 74.23 per cent,
while repair and maintenance take 2.4 per cent of the production cost.
45-14 Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)
Items
Cost
Raw Material and Inputs
%
1,757.25
56.15
565.58
18.07
75
2.40
164.16
5.25
54.72
1.75
109.44
3.50
2,726.15
87.11
Depreciation
248.89
7.95
Cost of Finance
154.33
4.93
3,129.37
100
Utilities Maintenance and repair Labour direct Factory overheads Administration Costs Total Operating Costs
Total Production Cost
C.
FINANCIAL EVALUATION
1.
Profitability
According to the projected income statement, the project will start generating profit in the first year of operation. Important ratios such as profit to total sales, net profit to equity (Return on equity) and net profit plus interest on total investment (return on total investment) show an increasing trend during the life-time of the project.
The income statement and the other indicators of profitability show that the project is viable.
2.
Break-even Analysis
The break-even point of the project including cost of finance when it starts to operate at full capacity ( year 3) is estimated by using income statement projection. BE =
Fixed Cost Sales – Variable Cost
= 16 %
3.
45-15
Pay Back Period
The investment cost and income statement projection are used to project the pay-back period. The project’s initial investment will be fully recovered within 4 years.
4.
Internal Rate of Return and Net Present Value
Based on the cash flow statement, the calculated IRR of the project is 30 % and the net present value at 8.5% discount rate is Birr 5.31 million.
D.
ECONOMIC BENEFITS
The project can create employment for 20 persons.
In addition to supply of the
domestic needs, the project will generate Birr 2.48 million in terms of tax revenue. The establishment of such factory will have a foreign exchange saving effect to the country by substituting the current imports.
