279.

PROFILE ON WATER FILTER CANDLES

279-2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

279-3

II.

PRODUCT DESCRIPTION & APPLICATION

279-3

III.

MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY B. PLANT CAPACITY & PRODUCTION PROGRAMME

279-4 279-4 279-6

IV.

MATERIALS AND INPUTS A. RAW MATERIALS B. UTILITIES

279-6 279-6 279-7

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

279-7 279-7 279-8

VI.

MANPOWER & TRAINING REQUIREMENT A. MANPOWER REQUIREMENT B. TRAINING REQUIREMENT

279-9 279-9 279-10

VII.

FINANCIAL ANLYSIS A. TOTAL INITIAL INVESTMENT COST B. PRODUCTION COST C. FINANCIAL EVALUATION D. ECONOMIC BENEFITS

279-11 279-11 279-12 279-13 279-14

279-3 I. SUMMARY

This profile envisages the establishment of a plant for the production of water filter candles with a capacity of 30,000 gross pieces per annum.

The present demand for the proposed product is estimated at 86,000 pieces per annum. The demand is expected to reach at 237,277 pieces by the year 2020.

The plant will create employment opportunities for 18 persons.

The total investment requirement is estimated at about Birr 3.54 million, out of which Birr 2 million 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 1.4 million discounted at 8.5 %.

II.

PRODUCT DESCRIPTION AND APPLICATION

Raw water contains suspended impurities and pathogenic bacteria, which are responsible for water borne diseases, like cholera, typhoid, jaundice, etc. These contaminants have to be removed to make the water safe for drinking purpose. One of the well-known methods is to filter water through beds sand, gravel and charcoal to remove the suspended impurities, followed by boiling to kill the bacteria. This process, through efficient, is costly and time consuming. To simplify the treatment of water, inexpensive domestic water filter candles has been developed.

The candle/s can be fitted to various types of domestic containers for getting bacteria free potable water.

279-4 III. MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

Water filter candles are used to filter turbid water from ponds, lakes, rivers, etc. and hence play a crucial role in the provision of safe drinking water in rural areas. The country's requirement for water filtering/purifying apparatus is essentially met through imports. Imports of machinery and apparatus for filtering/purifying water are considered in estimating the demand for water filter candles. Table 3.1 depicts the amount of imports of machinery and apparatus for filtering/purifying water during 1997-2006. Apparently, the amount of imports exhibit considerably high fluctuation. During the period under reference, imports varied from 98 in 1997 to 673811 in 2006 and averaged at 80374.

Table 3.1 IMPORTS OF APPARATUS FOR FILTERING WATER

Year

Imports (Number)

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Average

98 1620 4223 24432 6870 6710 53305 8444 24231 673811 80374

Source: Customs Authority, External Trade Statistics, 1997-2006.

279-5 Assuming supply was driven by demand, the average annual supply for the period under reference, which constitutes only imports, is considered as the effective demand for the product for the year 2006. The demand for the product is directly related with projects for the provision, at household level, of clean drinking water. Hence, given the extensive efforts on the part of the federal and regional governments to provide potable water for urban and rural households, a conservative estimate of 7% rate of growth is adopted in estimating the demand for the product. The present demand for the product (i.e. 2007) is thus estimated at 86000.

2.

Demand Projection

As stated above, a growth rate of 7% is considered in projecting the domestic for water filter candles. The projected demand for the product is shown in Table 3.2.

Table 3.2 PROJECTED DEMAND FOR WATER FILTER CANDLES (TONS)

Projected Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Demand 86000 92020 98462 105354 112729 120620 129063 138097 147764 158108 169175 181018 193689 207247 221754 237277

279-6 3. Pricing and Distribution

Based on the CIF price of the external trade statistics for 2006 (the latest data available), and allowing 30% for import duty and other clearing expenses, the factory gate price for the envisaged plant is estimated at Birr 543.54 per unit.

The envisaged plant can supply its product directly to users. The plant can also appoint agents at selected locations

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

According to the market study, the demand of pencil, in number, in year 2008 will be 92,020 tones whereas this demand will grow to 237,277 tones by the year 2022. Taking in to account the demand projected, complexity of the technology required and the economic scale of production, the envisaged plant will have a capacity of 30,000 gross per annum (8 hours /day and 300 working days per year).

2.

Production Programme

The envisaged plant is anticipated to operate at 70% and 80% of installed capacity in the first and second year, respectively. Full capacity production is expected to be achieved in the successive years. The low production level at the initial stage is planned to

develop substantial market outlets for the product and to build up production capacity of new equipment.

IV.

MATERIAL AND INPUTS

A.

MATERIALS

The major raw materials required are China clay, Saw dust, starch, common salt, insulating bricks, paddy husk, ash, bactericide, coal and packing materials.

279-7 The annual raw material requirement is calculated on the bases of the final output. Thus, the total cost of materials at full operation capacity of the plant is estimated to be Birr 500,000. Out this Birr 350,000.00 is in foreign currency.

B.

UTILITIES

The major utilities of the project are electricity, and water. Annual requirement and cost of utilities is indicated in Table 4.2.

Table 4.2 UTILITIES REQUIREMENT AND COST

Sr. No 1 2

Description

UOM

Qty.

Cost (000 birr)

Electricity Water

KWh m3 Total

50,000 100

23.68 1 24.68

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Process Description

The process for the production of water filter candles consists of grinding the non-plastic materials (China clay, insulated brick powder, quartz, feldspar, etc.),mixing with organic materials and casting the candles in moulds of desired shapes. The candles are sun -dried and then backed in furnace. After the candles are backed to the desired stage, are taken out and air-cooled. After final inspection is made each candle is packed and ready for dispatch.

279-8 2. Source of Technology

The machinery required for the envisaged plant could be obtained from Research Development of India Enterprise; . Fax + 91 11 292403409 Tel +91 1129240501

B.

ENGINEERING

1.

Machinery and Equipment

Table 5.1 shows the list of machinery and equipment required by the envisaged plant. The total cost of machinery and equipment is estimated at Birr 2 million, of which Birr 1.5 million is required in foreign currency.

Table 5.1 LIST OF MACHINERY AND EQUIPMENT

Sr. No. 1 2 3 4 5 6 Ball mill Crusher

Description

Qty.

1 1 1 set 1 set 1 1 2,000,000.00

SS Mixing tank(Assorted) Moulds (Assorted) Oil fired furnace Heater Total price (Birr)

2.

Land, Building and Civil Works

The plant requires a total of 500m2 area of land out of which 250m2 is built-up area which includes Processing area, raw material stock area, offices etc. Assuming construction rate of Birr 1500 per m2, the total cost of construction is estimated to be Birr 3.75 million.

279-9 The total cost, for a period of 80 years with cost of Birr 1 per m2, is estimated at Birr 500. The total investment cost for land, building and civil works is estimated at Birr 3.755 million

3.

Proposed Location

According to the resource potential study of the region, some of the raw materials are identified in Gurafereda woreda. Based on the availability of raw materiasl infrastructure, utility and market out let Biftu town of Gurafereda Woreda is selected and recommended to be the location of the envisaged plant.

VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The envisaged plant will create job opportunities for about 18 workers, of these 41 of the employees are production workers while the remaining are administrative staff. The detail is indicated in Table 6.1.

279-10 Table 6.1 MANPOWER REQUIREMENT AND ANNUAL LABOUR COST (BIRR)

Sr. No. A. 1 2 3 4 5 6 7

Description

Req. No.

Monthly Salary

Annual Salary

Administration Manager Administrator Accountant Secretary Salesperson General service Driver Sub-total 1 1 1 1 1 1 2 8 1,800 950 750 450 600 600 600 21,600 11,400 9,000 5,400 7,200 7,200 7,200 69,000.00

B. 1

Production Production and technical head 1 1250 15,000

2 3

Skilled workers Unskilled workers Sub-total Total Benefits salary) Grand total (25% of basic

6 3 10 18

3000 750

36,000 9,000 60,000 129,000 32,250

18

161,250.00

B.

TRAINING REQUIREMENT

Imparting skill both on the Engineer and the skilled workers who will be directly involved in the water filter candles production is an essential task. Thus, on-job-training by the machinery supplier for about two weeks should be given locally. estimated to be Birr 40,000. The training cost is

279-11

VII.

FINANCIAL ANALYSIS

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

Construction period Source of finance

1 year 30 % equity 70 % loan

Tax holidays Bank interest Discount cash flow Accounts receivable Raw material local Raw material, import Work in progress Finished products Cash in hand Accounts payable

3 years 8% 8.5% 30 days 30days 90days 5 days 30 days 2 days 30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at 1.54 million, of which 13 per cent will be required in foreign currency.

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

279-12

Table 7.1 INITIAL INVESTMENT COST

Sr. No. 1 2 3 4 5 6 7 Cost Items Land lease value Building and Civil Work Plant Machinery and Equipment Office Furniture and Equipment Vehicle Pre-production Expenditure* Working Capital Total Investment cost Foreign Share

Total Cost (000 Birr) 24.0 300.0 668.0 75.0 200.0 229.7 45.5 1,542.1 13

* N.B Pre-production expenditure includes interest during construction ( Birr 104.66 thousand ) training (Birr 5 thousand ) and Birr 120 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 693,130 (see Table 7.2). The material and utility cost accounts for 40.47 per cent, while repair and maintenance take 11.54 per cent of the production cost.

279-13

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

Items Raw Material and Inputs Utilities Maintenance and repair Labour direct Factory overheads Administration Costs Total Operating Costs Depreciation Cost of Finance Total Production Cost

Cost 215.00 67.4 80 43.35 14.18 35.4 455.33 154.3 83.5 693.13

% 31.02 9.72 11.54 6.25 2.05 5.11 65.69 22.26 12.05 100

C.

FINANCIAL EVALUATION

1.

Profitability

According to the projected income statement, the project will start generating profit in the first year of operation. Important ratios such as profit to total sales, net profit to equity (Return on equity) and net profit plus interest on total investment (return on total

investment) show an increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is viable.

279-14

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

34%

3.

Pay Back Period

The investment cost and income statement projection are used to project the pay-back period. The projects initial investment will be fully recovered within 3 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 1.4 million.

D.

ECONOMIC BENEFITS

The project can create employment for 18 persons. In addition to supply of the domestic needs, the project will generate Birr 829,610 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.