Project profile on ginning

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Table of Contents1. Executive Summary............................................................................................22. Product Description and Application...............................................................23. Market Study, Plant Capacity and Production Program...............................33.1 Market Study....................................................................................................33.1.1 Present Demand and Supply.........................................................................33.1.2 Projected Demand.........................................................................................53.1.3 Pricing and Distribution................................................................................63.2 Plant Capacity and production capacity........................................................74. Raw Materials and Utilities ..............................................................................94.1 Availability and Source of Raw Materials......................................................94.2 Annual Requirement and Cost of Raw Materials and Utilities..................105. Location and Site................................................................................................116. Technology and Engineering..............................................................................116.1 Production Process............................................................................................116.2 Machinery and Equipment ..............................................................................166.3 Civil Engineering Cost......................................................................................207. Human Resource and Training Requirement ..................................................228. Financial Analysis................................................................................................248.1 Underlying Assumption.....................................................................................24

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8.2 Investment.........................................................................................................258.3 Production Costs...............................................................................................268.4 Financial Evaluation...........................................................................................279. Annex....................................................................................................................29

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1. Executive Summery

This project profile pictures the establishment of a Double roller type cotton ginning plant for the production of good quality of lint cotton and cotton seed with a capacity of 7000 tons per annum of lint cotton and 14000 ton per annum of cotton seed.

The plant is designed to sell 100 % of its product to the international market and the remaining 20 % is for the domestic market.

The present demand for the proposed lint cotton is estimated at 16,213 tons per annum. The demand for lint cotton is expected to reach at 2,031,804 tons per year by the year 2015 based on the projection made on the five year growth and transformation plan of Ethiopian textile sector.

The total investment requirement is estimated at Birr 150,895,000 Birr, out of which Birr 17,960,000 Birr is required for plant and machinery. The project will create employment opportunity for 77 people.

The project is financially feasible that it will reach breakeven point at 28% of the capacity and has a payback period of 3.7 years.

2. Product description and application

Ginning is the first mechanical process involved in processing cotton. Ginning mill separates cotton fibers from the seed bolls and dust particles. The main application of ginned cotton referred to as lint is for spinning operations, where lint is converted to yarn.

The major raw material required is Acala cotton, which is quite available in all parts of the country locally.

Lint cotton is the primary raw material needed for textile spinning mills and cotton seed is highly demanded for cotton agriculture and agro industries which produce edible mush rooms, cattle feed and edible oil producers and for organic fertilizers.

3. MARKET STUDY AND PLANT CAPACITY

3.1 MARKET STUDY

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3.1.1. Past Supply and Present Demand

World production of cotton stood at 137.8 million bales1 (170 Kg of each bale) in the year 2008-2009. The leading producers include China, India, USA, Pakistan, Brazil, and Turkey. The Indian cotton nearly accounts for 22% of the total exports of cotton in the international cotton market1. Sine Ethiopian cotton has good staple length, color, fiber strength and relatively lowers trash content and foreign materials; there is good opportunity to be good producer of cotton materials and compete in the international market with all the provided advantages of the current situation. [1]

Since a greater attention is given to textile manufacturing sector in our country Ethiopia, a number of foreign and domestic investors are establishing many mechanized cotton farms and textile industries in the country. All the incentives provided by the government of Ethiopia such as tax free market for textile products in economic giant continents like US and Europe, 70% by 30% Development Bank loan scheme, 80 years lease land for investors and 5 years tax free spare parts import and other matters passionate more and more investors to be drawn to the textile sector.

Along with the above incentives the textile manufacturing industries are migrating to Africa and other poor due to the increase of labor cost in countries like Turkey, Italy, Germany, Japan, China and others. Ethiopia has good source of quality cotton and relatively low cost labor force. All these parameters fueled the textile sector to show dramatic change in the economy of the country.

Due to the reasons listed above, the demand for the cotton textile products is quite required to cover all the demands in the local and in the international market.

Import data from Customs and Revenues Authority lumps up the import data of textile products.

The market segment for proposed project is 100% targeted to the international market for the last 10 years Ethiopia has exported insignificant amount of lint cotton though the market is so much open for developing nations and the government has planned to export as it is depicted in the following table.

The Ethiopian1 source Asian Textile journal 2003

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The domestic production Data of Industrial cotton yarn is shown in Table 3.1.

Table 3.1 Export Market demand plan of Lint cotton yarn

Year(EC)

Lint cotton Export plan

(In KG) cotton Seed Exported (Kg) Growth Rate (%)

1996 8,526 10402 22.0%

1997 10,930 13335 22.0%

1998 14,013 17096 22.0%

1999 17,966 21919 22.0%

2000 23,033 28100 22.0%

2001 29,529 36025 22.0%

2002 37,858 46187 22.0%

2003 48,536 59214 22.0%

3. 1.2. Projected Demand

To project the future demand for the ginned lint cotton and cotton seed, the major influential factors on the demand are dramatic growth of textile manufacturing industries, agro industries engaged in Mash room production and edible oil (refining) pressing and expansion of mechanized cotton farms in the country are considered.In view of this the Federal government of Ethiopia has made a five year (2003-2007) growth and transformation plan to export the depicted amount of lint cotton and cotton seed. Accordingly, an average annual growth rate of lint cotton and seed cotton is about 30% hence, by taking the estimated present demand as a base and applying a 30% growth rate the projected demand for the product is shown in Table 3.2

Table 3.2 Projected Export plan of lint and Seed cotton

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Year EC

Projected Demand Lint cotton(Kg)

Projected Demand

cotton Seed (kg)

Existing Capacity Lint cotton(In KG)

Unsatisfied demand Lint cotton (KG)

Growth Rate (%)

2003 48,536 145,608 32,323 16,213 18.20%2004 59,338 178,014 32,323 27,015 31.37%2005 86,456 259,368 32,323 54,133 21.52%2006 110,159 330,477 32,323 77,836 19.05%2007 136,078 408,234 32,323 103,755 22.00%2008 186,427 559,281 32,323 154,104 37.00%2009 257,269 771,807 32,323 224,946 38.00%2010 357,604 1,072,812 32,323 325,281 39.00%2011 500,646 1,501,937 32,323 468,323 40.00%2012 705,910 2,117,731 32,323 673,587 41.00%2013 1,002,393 3,007,178 32,323 970,070 42.00%2014 1,433,421 4,300,264 32,323 1,401,098 43.00%2015 2,064,127 6,192,381 32,323 2,031,804 44.00%

As revealed by the data set in Table 3.2, cotton yarn consumption had exhibited an average annual growth of 22% during the years 1996 to 2003. Assuming this growth trend will increase to 30%, the future demand for cotton yarn is projected to range from 48,536tons in year 2003 to 2,031,804 tons by the year 2015. The unsatisfied local market demand by the year 2015 is determined to be 2,031,804 tons assuming that the existing ginning capacity 32,323tons is remained unchanged for the coming 10 years as it is shown in table 3.2.

3.1.3 Pricing and DistributionBased on current average price of the world cotton market price and cotton seed price, the price of Birr 50/ Kg. for lint cotton and of Birr 0.75/Kg. for cotton seed is adopted for financial analysis. The roller ginned lint cotton can be distributed throughout the country’s textile manufacturing industries, medical textile manufacturer and Agro industries and to the international market.

Table 3.3 Price distribution

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Product Mix U/m Current price(Birr) Weight (%)

Lint Cotton kg 50 32%

Cotton seed kg 0.75 65%

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3.2 Plant capacity and production program

3.2.1 Plant capacity

Relaying on the projected data obtained, the double roller ginning mill is supposed to produce lint cotton and cotton seed at a capacity of 7000tons per year.

The Ginning mill will work 140 days per annum and 21 days per day in 3 shifts. The total working days in the year excludes Sundays and public holydays as well as cotton ginning is a seasonal work.

3.2.2 Minimum economic size of the plantThe capacity of the proposed gin plant depends on the number of double roller gin stands installed in parallel. The ginning capacity of the ginnery is also limited by that of the bale press and of other Components such as feeders, conveyors and cleaners.

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The actual capacity depends on variety, quality and type of cleaned and open seed cotton and is subject to the appropriate feeding rate of the gin stand and to the correct moisture content of the seed cotton. Based on all the parameters, the minimum economic capacity of the ginning mill is about 34 Bajaj double roller Gins with the capacity of 34x70x21x140kg/year (7000 ton/year).

▪ Standard Double Roller (Bajaj): 40-70 kg of lint per hour

▪ Jumbo Double Roller (Bajaj): 65-110 kg of lint per hour [2]

3.2.3 Yield and Production

The yield of lint cotton is assumed to be 32%, cotton seed is assumed at 65% and waste is assumed at 3%3 which are based on the ginning industrial norms and ginning machineries manufacturer’s specifications. [3]

3.2.4 Production program

The planned capacity will be achieved in the establishment year of the Ginning mill. In a period of 6 months, the plan comes to be certain. The reasons for these are the plant doesn’t require highly skilled manpower and the technology is so simple to get used to. It is estimated that production starts at 100% plant capacity in the first year and it will continue to work with this capacity for the coming 10 years.

Table 3.4 Yearly Production Program

Year 1 2 3 4 and above

Capacity Utilization (%) 100 100 100 100

Lint cotton(Tons) 7000 7000 7000 700022 Economics of roller ginning, 2010

3 African textile journal,20038

Seed cotton 14218.75 14218.75 14218.75 14218.75

4. Raw Materials and other inputs

4.1 Raw MaterialsThe main raw material required to produce Lint cotton is raw cotton. The major supplier of this raw materials are small scale farmers and large scale cotton farming all over the country. There are auxiliary materials like poly bag, jute sack, and tie wire and etc..

Table 4.1 Raw and Auxiliary materials & costs

S/n Description U/M Qty Cost(Birr)

  A. Raw material     LCFC Total Cost

1 Raw cottonTone

21875 262,500,000   262,500,000

  Sub Total         262,500,000

  B. Auxiliary material          

1 Packing materialsTone       1,312,500

2 Jute sack(Bag)Tone       6,562,500

  Sub Total         7,875,000

  C. Miscellaneous         2,625,000

  Sub Total         2,625,000

  Total         273,000,0004.2 Utilities

Electricity, fuel and water are the three major utilities required by the 9

plant. Total annual cost of major utility items at full operation capacity of the plant is Birr 1,889,872.Details are shown in the table below

Table 4.2 Utilities Requirement

S/N Utility Requirements (Annual) Unit price Cost(Birr)1 Electricity 1,408,995kwh 0.55 Birr/Kwh 774,9472 Fuel(Diesel Oil) 76800lt 14.50 Birr/lt 1,113,6003 Water 500 m3 2.65 Birr/m3 1,325

Total     1,889,872

5. Location and Site

Location of the plant is determined on the proximity of raw materials, availability of infrastructure, availability of skilled man power and distance to potential market outlet.

In view of this, the envisaged plant will be established in Oromiya regional state in Sebeta industrial zone.

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6. Technology and Engineering

6.1 Production process

Feeding

Gin machinery operates more efficiently when the cotton flow rate is constant. In early

gins the flow rate was often erratic because of the variable work rate of the person

unloading the wagon. The automatic feed control was developed to solve this problem by

providing an even flow of cotton to the gin’s cleaning and drying system.

Pre-cleaning

The next process utilizes mechanical devices (cleaners such as stick machine, cylinder

cleaner and impact cleaner, cyclones and extractors) designed to remove impurities

like motes (immature seeds), cotton burrs, sticks, stems, sand and dirt, and similar trash

in seed cotton before ginning[4].

Drying/conditioning

Tower driers are not required for drying seed cotton in the SSA context. If the cotton is

very dry, it may be necessary to use humidifiers to add water, so as to maintain a moisture

content of 6.5 to 8% for saw ginning and 5 to 6% for roller gins[4].

Extractor feeder

The primary function of an extractor-feeder is to feed seed cotton uniformly to the gin

stand at controllable rates. Seed cotton cleaning is a secondary function. At the “gin

feeder,” the seed cotton is separated so that single locks of seed cotton are fed into and

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through the “gin stand.”

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4 Economics of roller ginning, 2010

Gin stand

Fundamental principle Roller ginning is pulling of cotton fibers from the seed coat. Fibers are gripped between rollers, blades or a roller and a blade and stretched to be separated from seeds. The space through which fibers are stretched is so narrow that it does not permit seeds passing through with lint.

Post-cleaning (lint cleaning)

The lint cleaner provides the first opportunity for combing and cleaning of the cotton fiber and separates the foreign material into a separate process stream of by-products called motes [5].These cleaners were developed specifically for combing and final cleaning to remove foreign matter left in the ginned lint, such as small leaf particles, seed coat fragments, motes, sticks and grass. Lint cleaners can improve the grade of cotton by removing foreign matter if the cotton has the necessary color and preparation characteristics.

Length and several other important quality factors can be damaged by excessive lint

Cleaning, especially when the cotton is too dry (<5% moisture content). However, for

Roller-ginned cotton, the lint cleaner is composed of three machines: a cylinder cleaner,

an impact cleaner and an air-jet cleaner.

After ginning and lint cleaning, the combed lint is pneumatically conveyed to a

“Condenser,” which forms the cotton lint into a “batt” and then meters and feeds the

Stream of batted lint down a “lint slide” into the bale press.

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5 Economics of roller ginning, 2010

Pressing and baling

The function of trampers is to loosely press the cotton into the press box as it is received from the condenser. The function of the bale press is to produce uniform, compact, densely- packed bales of cotton lint that go to warehouses for storage or directly to textile mills for processing (spinning) into yarn.

Cotton must be baled and packaged to protect it from contamination during transportation and storage. This standard bale of 175 kg [6] supports storage, handling and process uniformity throughout the marketing and processing system.

Generally, the proposed Double roller ginning plant will have the following process as shown in the flow chart given below. Seed cotton is fed to grading system where grading is done followed by pneumatic conveying. From here it is fed to preliminary cleaning process, followed by double roller gin, lint cleaner, pre-bale press and cotton bales.

The following chart shows the process flow in the envisaged Ginning mill

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[6] Asian textile journal,2003

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Post-cleaning (lint cleaning)

Oil presser

Cotton Seed

Raw cotton

Grading

Cotton Feeding

Pressing and baling

Pre-cleaning

Gin stand (double roller Gin)

Extractor feeder

Transportation CakeOil

Drying/conditioning

Chart-1 Ginning process flow chart

6.2 Sources of Technology

US-made cotton ginning equipments are much more costly than equivalent equipment from China, Brazil and India. From Turkey are about twice cheaper than

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their equivalent from the US. With reduction in production in many countries, particularly in the US, a lot of secondhand ginning machines are available in the market4.

Mostly American technologies are considered as source of technology. However, the double roller gin stand is from Bajaj, India. For air conditioning equipments Luwa, Switzerland is recommended.

6.3 Machinery and Equipment

Different researches on cotton show that the fiber-seed attachment force differs for varieties of cotton origin, field conditions, moisture content, and other factors, but it is typically about 55% [7] of the breaking force, suggesting that the fibers could normally be removed from the seed without breakage. All the currently existing ginning machineries in the world are functioning on two principal methods for separating lint from seeds. These are roller type ginning and saw type ginning techniques. Whether the gin stand is saw type or Roller type, it removes (pulls) the fiber from the seed. By doing this action the fiber is separated from the seed. These separation techniques are the heart of the ginning process.

Roller ginning is the most primitive way of removing lint from seeds. Fundamental principle of a harsh pulling of fibers from the seed coat has not changed. Fibers are gripped between rollers, blades or a roller and a blade and stretched to be separated from seeds.

The space through which fibers are stretched is so narrow that it does not permit seeds passing through with lint. The process is comparatively slow but considered to be gentle[9].

In a double roller (DR) gin, two leather rollers, pressed against a stationary knife, rotate in opposite direction. When the seed cotton is fed to the gin, fibers adhere to the rough surface of the roller and are carried in between the fixed knife and the roller, and partially gripped between them. Oscillating knives beat the seeds from top and separate the fibers, which are gripped from the seed end. The seeds are

47 Economics of roller ginning, 2010 8 Effects of Roller Ginning and Saw Ginning on Pima S-1 Cotton, John J. Brown, Nathaniel A. Howell and George F. Ruppenicker Jr, New Orleans, Louisiana, USA

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carried forward on the roller and doffed out of the machine. Fiber comes out from the bottom side.

This project profile recommends, the ginning plant is better to be double roller type ginning. Because, researches and experiences all round the world show that the general processing efficiency of the roller-ginned cotton is much better than that of the saw-ginned cotton [9]. The methods of ginning had appreciable effect carded yarns spun from roller-ginned cotton were significantly stronger than those spun from saw-ginned stock.

Combed yarns spun from the roller- ginned cotton were better in appearance than those spun from the saw-ginned stock[9] . Fabrics produced from combed cotton ginned by both methods were approximately equal in tearing strength, but the saw-ginned cotton produced fabric that, in some cases, had a lower elongation and breaking strength. The results for abrasion resistance of the finished fabrics were inconclusive. The fabric woven from the saw-ginned. Cotton contained considerably more neps than that woven from the roller-ginned cotton.

_____________________________________7 Economics of roller ginning, 2010

According to these latest research results the following are the salient features of Double Roller cotton Gin Machine:

1. Higher Length of Fiber:

As compared to Saw Gins and Rot bar Gins higher length Fiber is obtained for the same variety of cotton under the same conditions.

2. Elimination and Delinting of Cotton Seeds:

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The Cotton Seeds obtained after ginning on DR Gin have minimum Fiber content, which is within the permissible limit for direct oil crushing, hence, cotton seeds obtained on Double Roller Gin may be directly used for crushing by oil mills, which saves huge delinting costs required, compared to Saw Gin.

3. Retaining of Natural Luster and Moisture:

DR Gin is gentle ginning technology, where the Fiber is separated by stretching method and Fiber comes out in a blanket type shape in straightened position, resulting in lower neps and higher Fiber length and at the same time it retains natural moisture and luster of thecotton.4. Lower Neps Contents:

The test results show that the neps in cotton lint obtained from DR Gin, are below 90 neps while the neps count for Saw Gin are observed to be around 225 and above.

5. Higher Output of Fiber:

On DR Gin, the output for the Fiber increases by about 2% due to extra length.

6. Higher Profitability:

Due to higher Fiber output and elimination of de linting requirement for cotton seeds, the profitability on DR Gin is very high.

8. Lower Cost of Project:

The cost of project is cheaper by about 40% 5in case for same capacity plant for Double Roller Gins Plants, as compared to Saw Gins and Rotobar Gins Plants.

510Effects of Roller Ginning and Saw Ginning on Pima S-1 Cotton, John J. Brown, Nathaniel A. Howell and George F. Ruppenicker Jr, New Orleans, Louisiana, USA

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9. Possibility of Smallest Size Plant & Biggest Size Plant:

The plant size in case of ‘Bajaj’ DR Gin can be for the smallest requirement, as well as highest requirement, while in case of Saw Gin and Rotobar Gin this may not be possible.

10. Premium by buying Mills:

As the neps contents and Fiber parameters like natural moisture, natural luster, thrash contents etc. are much better for the cotton ginned variety on Double Roller Gins, spinning mills pay a premium of 2 cents per pound in most of the cases.

Table 6.1 Machinery and Equipment requirement & Cost for Ginning Mill

S/N Description Brand Origin U/M QtyPrice(Birr)

U/p(Birr) TC(Birr)1 Separator Muray USA Set 1 170,000 170,0002 Dryer Muray USA pcs 2 85,000 170,0003 Cleaning machine Muray USA pcs 3 210,000 630,0004 Master extractor Muray USA pcs 2 500,000 1,000,0005 Distributor Muray USA pcs 2 40,000 80,0006 Feeders Bajaj India pcs 34 10,000 340,000

7Bajaj Double Roller ginning stands Bajaj India pcs 34 90,000 3,060,000

8 Lint cleaners Muray USA pcs 2 600,000 1,200,0009 Hot gas generator Muray USA pcs 1 200,000 200,000

10Seed handling equipment Muray USA pcs 2 70,000 140,000

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11 Condenser Muray USA pcs 2 85,000 170,000

12Pressing and baling equipment. Muray USA pcs 2 100,000 200,000

13Steam Generation unit 0.2 ton/hr Loose Germany pcs 1 200,000 200,000

14 Air conditioning LuwaSwizerland set 1 500,000 500,000

15 Compressor GA 50Atlascopco Belgium pcs 3 200,000 600,000

16 Fire Figting plant Iveco Italy Set 12,000,00

0 2,000,00017 Electric power plant Siemens Germany set 1 200,000 200,000

18Stand by Electric power Generator Caterpilar USA pcs 1 100,000 100,000

19 Mechanical Workshop   Italy set 1 500,000 500,000

20Electrical and Electronic workshop Siemens Italy set 1 500,000 500,000

  Misslenous     set 11,000,00

0 1,000,000

  FOB Price        9,473,10

012,960,00

0

 

Freight,Insurance,customs & Bank charges,Material handeling cost        

5,000,000 5,000,000

  Total CIF Land cost          17,960,00

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6.3. Land, building and civil work

Because of the smaller capacity of roller gins, the greater number of gin stands increases considerably the space required for the machines in a roller gin plant, as compared to a saw gin plant of same capacity.

The proposed standard Double Roller plant model will need 34 gin stands6 and a floor area of 450 sqm. The above estimates only take into consideration the floor area required for the gin stands and their feeders, and not the area required for the other components of the processing chain (assumed to be similar in all models).

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It shows however that the type of gin used has a considerable impact on the floor area requirement, and therefore on the construction cost and conveying equipment (number of motors, length of belt conveyors).

The proposed plant requires a total land area of 10000m2. The floor space required for plant building, ware house, parking lot and for other facilities. A building with single story covering an area of 3400m2 will be constructed to accommodate the production hall and office building respectively. The total estimated cost of building civil works at the rate of Birr 6,300 per m2 is Birr 4,410,000. The lease period for the land 70 years and the payment of lease prices.

Moreover, advance payment of lease based on the type of investment ranges from 5% to 10%.The lease price is payable after the grace period annually. Accordingly, in order to estimate the land lease cost of the project profiles it is assumed that all manufacturing projects will be located in Oromia region, industrial zone. Therefore, for this profile since it is a manufacturing project a land lease rate of Birr 1.25 Birr/M2/year is adopted.

Table INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS

Scored PointGrace Period

Payment Completion Period

Down Payment

Above 75% 5 Years 30 Years 10%

From 50 - 75% 5 Years 28 Years 10%

From 25 - 49% 4 Years 25 Years 10%

For the purpose of this project profile the average i.e. five years grace period, 30 years payment completion period and 10% down payment is used. The period of lease for industry is 70 years.

Accordingly, the total lease cost, for a period of 70 years with cost of Birr 1.25 Birr/M2/year, is estimated at Birr 1,000,000 of which 10% or Birr 100,000 will be paid in advance. The remaining Birr 900,000 will be paid in equal installments within 70 Years i.e. Birr 12857.15 annually.

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7. Man power and training requirements7.1 Man power requirement for operation

Table 7.1 Man power Requirement of Ginning mill and Annual labor costS/N Description Req. No Monthly salary Annual salary

1 Factory Manager 1 9,000 108,0002 Secretary 1 3,000 36,0003 Production and Tech Manager 1 7,500 90,0004 Production supervisor 4 3,500 168,000

5Mechanical maintenance supervisor 1 3,500 42,000

6 Electrical Supervisor 1 3,500 42,0007 Machine Operators 30 800 288,0008 Mechanic 6 1,300 93,6009 Electrician 5 1,300 78,000

11 Quality and Laboratory manager 1 7,500 90,00012 Process testers 3 2,000 72,00013 Marketing Manager 1 7,500 90,000

14Administration and Finance manager 1 7,500 90,000

15 Accountant 1 5,000 60,00016 Clerks 1 1,000 12,00017 Cashier 1 1,200 14,40018 Purchasers 1 1,500 18,00019 Store Keepers 2 1,000 24,00020 Guard 7 700 58,80021 Messenger and cleaner 1 600 7,200

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22 Driver 3 800 28,80023 Cleaner 4 600 28,800

  Sub Total     1,539,600  Employee Benefit ( %) 15%   230,940  Grand Total 77   1,770,540

The manpower requirement is considered at 757personnel for various levels. This includes Casual labor, technical, supervisory staff and administrative staff. Table below, shows the list of manpower required along with annual labor cost.

7.2 Man power requirement for Project execution

Table 7.2 below, shows the list of manpower required along with annual labor cost. Total manpower needed, including skilled and unskilled labor is 23persons.

Table 7.2 Man power Requirement of Ginning mill and 6 months labor cost

S/N DescriptionReq. No

Monthly salary/head Annual salary

1 Project Manager 1 15,000 180,0002 Project Engineer 1 9,000 108,0003 Construction Forman 1 6,000 72,0004 Electrician 2 4,000 96,0005 Mechanics and Plumbers 2 4,000 96,0006 Secretary 1 3,000 36,0007 Finance and Administration 1 10,000 120,0008 Accountant 1 7,000 84,0009 Purchaser 1 5,000 60,000

10 Cashier 1 1,500 18,00011 Daily Laborer 4 2,000 96,00012 Driver 1 1,000 12,00013 Guard 6 1,000 72,000

  Sub Total 23   1,050,000  Employee Benefit (%) 30%   315,000  Grand Total     1,365,000

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7.3 Training, Design and Consultancy

The total cost required for design, consultancy, training and commissioning is estimated to be 10 million birr.

Table 7.3 Design, consultancy ,training and test run costS/N Description Est. Budget/year(Birr)

1 Engineering, Design & consultancy fee 500,000

2 training 300,0003 Commissioning and test run with 10% contingency 600,000

4 Total 1,400,000

8. Financial Analysis

8.1 Underlying Assumption

The financial analysis of cotton yarn producing plant is based on the data provided in the preceding chapters and the following assumptions

A. Construction and FinanceConstruction period 6 monthsSource of Finance 30% equity and 70% Loan from bankTax Holidays 5 yearsBank Interest rate 8.50%Discount for cash flow 8.50%Value of Land Based on the lease rate of oromiyaSpare parts & Repair and Maintenance 5% of the fixed investment

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B. DepreciationBuilding 5%Machinery and Equipment 10%Office Furniture 10%Vehicles 20%Pre-Production(Amortization) 20%

C. Working Capital(Minimum day of coverage)Raw Material Local 30 days

Raw Material Foreign 120 days

Factories supplies in stock 30 days

Spare part in stock and Maintenance 60 days

Work in Progress 5 days

Finished Product 20 days

Account receivable 30 days

Cash in Hand 20 days

Accounts payable 30 days

8.2 Investment

The investment cost of the project including working capital is estimated at Birr 150 million. The owner shall contribute 30% of the finance in the form of equity while the remaining 70% is to be financed by bank loan.

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Table 8.1 Total Initial InvestmentItem LC FC TotalLand 1,000,000   1,000,000

Building and Civil Work 1000000011,420,000 21,420,000

Office Equipment   1,000,000 1,000,000Vehicles   5,000,000 5,000,000

Plant machinery and equipment  17,960,000 17,960,000

Total Fixed investment cost  35,380,000 35,380,000

Pre-Production(Capital Expenditure)   1,765,000 1,765,000

Total initial investment cost  37,145,000 37,145,000

Working capital at full capacity113,750,000   113,750,000

Total124,750,000

37,145,000

150,895,000

8.3 Production Cost

The total production cost at full capacity operation is estimated at Birr 239 million. raw material and utilities accounts for 95%. while the rest together costs 5% of the total production cost.

Table 8.3 Total Production cost at full capacity

Items Cost1. Raw Material 227,500,0002.Utilities 1,889,8723.Wages and salaries 4,309,7404.Spares and Maintenance 11375005. Depreciation 3,538,0006.Marketing and Promotion 1,030,0007.Adminstrative Expense 22,750,000Total Production cost 239,405,112

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8.4 Financial EvaluationI. ProfitabilityAccording to the projected income statement (See Annex 1) the project will generate profit beginning from the second year of operation and increases on wards. The income statement and other profitability indicators also show that the project is viable.II. Breakeven AnalysisThe breakeven point of the projects is given by the formula:BEP = Fixed Cost Sale –Variable Cost at full capacity.The project will break even at 28 % of capacity utilizationIII. Payback PeriodInvestment cost and income statement projection are used in estimating the project payback period. The projects will payback fully the initial investment less working capital in3.8 years.9. Economic and Social Benefits and JustificationBased on the foregoing presentation and analysis, we can learn that the proposed project possesses wide range of benefits that complement the financial feasibility obtained earlier. In general, the envisaged project promotes the socio-economic goals and objectives stated in the growth and transformation plan of the government.

A. Profit GenerationThe project is found to be financially viable and earns on average a profit of Birr 58 million per year and Birr 560 million within the project life. Such result induces the project promoters to reinvest the profit which, therefore, increases the investment magnitude in the country.B. Tax RevenueIn the project life under consideration, the region will collect about Birr 800 million from corporate income tax. Such result create additional fund for the government that will be used in expanding social and other basic services in the region.

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C. Employment and Income GenerationThe proposed project is expected to create employment opportunity to several citizens of the country. That is, it will provide permanent employment to 60 professionals as well as support stuffs. D. Pro Environment ProjectThe proposed production process is environment friendly.

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ANNEXES

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