107.

PROFILE ON PRODUCTION OF LIME

107-2
TABLE OF CONTENTS

PAGE

I. SUMMARY 107-3

II. PRODUCT DESCRIPTION & APPLICATION 107-3

III. MARKET STUDY AND PLANT CAPACITY 107-4
A. MARKET STUDY 107-4
B. PLANT CAPACITY & PRODUCTION PROGRAMME 107-6

IV. RAW MATERIALS AND INPUTS 107-7
A. RAW & AUXILIARY MATERIALS 107-7
B. UTILITIES 107-7

V. TECHNOLOGY & ENGINEERING 107-8
A. TECHNOLOGY 107-8
B. ENGINEERING 107-9

VI. MANPOWER & TRAINING REQUIREMENT 107-11
A. MANPOWER REQUIREMENT 107-11
B. TRAINING REQUIREMENT 107-12

VII. FINANCIAL ANALYSIS 107-12
A. TOTAL INITIAL INVESTMENT COST 107-12
B. PRODUCTION COST 107-13
C. FINANCIAL EVALUATION 107-14
D. ECONOMIC BENEFITS 107-15
107-3

I. SUMMARY

This profile envisages the establishment of a plant for the production of lime with a
capacity of 5,000 tonnes per annum.

The present demand for the proposed product is estimated at 11,234 tonnes per annum.
The demand is expected to reach at 40,922 tonnes by the year 2025.

The plant will create employment opportunities for 34 persons.

The total investment requirement is estimated at about Birr 18.26 million, out of which
Birr 8 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 29 % and a net
present value (NPV) of Birr 19.21 million discounted at 8.5%.

I. PRODUCT DESCRIPTION AND APPLICATION

Limestone is defined as a rock of sedimentary origin composed principally of calcium
carbonate or the double carbonate of calcium and magnesium, or a combination of these
two minerals.

Lime is inorganic chemical compound, which is usually known as quick lime or non-
slaked lime obtained from a naturally occurring compound called limestone. Quick lime
that is chemically expressed as calcium oxide, a strong caustic ingredient widely used in
construction industry in the preparation of mortar and plasters.

It is also used for white washing of houses and building. Iron and steel plants and
foundries use lime as fluxing agent in considerable quantities. Some drugs and
pharmaceuticals, paper mills, pesticides formulation plants, and other chemical
107-4
processing industries use it as additives. Moreover, it has a considerable contribution in
agriculture as an agent for removal of excess soil acidity.

III. MARKET AND PLANT CAPACITY

A. MARKET STUDY

1. Present Demand and Supply

Lime is used in the preparation of cement and mortar and as a neutralizer of acid soils in
agriculture. It is also used in the manufacturing of paper, glass, and white mash, in
leather tanning, sugar refining, and as a water softening agent. The requirement for lime
is entirely satisfied through domestic production. Table 3.1 depicts the amount of
domestic production of lime during 1997-2005. Apparently the volume of production had
been fluctuating with a rising trend. On the average, 9456 tons of lime was produced
during the period under reference.

Table 3.1
Domestic Production of Lime

Year

Quantity
(tons)

1996 7207
1997 7332
1998 6619
1999 6913
2000 9273
2001 11350
2002 7805
2003 10532
2004 15679
2005 11850
Average 9456
Sources: CSA, Statistical Abstract, various years.
107-5

Given, the considerable fluctuations in the supply of the product, which comprises of
only domestic production, the average annual supply for the period under reference is
considered as the effective demand for the product for the year 2005. The average rate of
growth of supply of the product during the reference period is computed to be 9%. This
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 11234.67 tons.

2. Demand Projection

As stated above, a rate of growth of 9% is used in projecting the demand for lime.
Assuming the produce of the envisaged plant can account for one-fourth of the projected
demand, the market share of the envisaged plant is depicted in Table 3.2.

Table 3.2
PROJECTED DEMAND FOR
LIME (TONS)
Year


Projected
Demand
Market share
of Envisaged
Plant
2007 11234.67 2808.67
2008 12245.79 3061.45
2009 13347.91 3336.98
2010 14549.22 3637.31
2011 15858.65 3964.66
2012 17285.93 4321.48
2013 18841.67 4710.42
2014 20537.42 5134.35
2015 22385.78 5596.45
2016 24400.50 6100.13
2017 26596.55 6649.14
2018 28990.24 7247.56
2019 31599.36 7899.84
2020 34443.30 8610.83
2021 37543.20 9385.80
2022 40922.09 10230.52
107-6
3. Pricing and Distribution

The current price of lime ranges from about Birr 3,500 per tonnes to Birr 4,500 per
tonnes. This price range could, therefore, be used as a reference for the financial
evaluation of the project.

Distribution could be effected directly to major users or through the intermediariship of
wholesalers and agents.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

In determining the plant capacity of the lime production plant the future demands of the
product and the economic of scale of the available technologies were taken into
consideration. According to the data obtained from the market study, the market share of
the envisaged plant raises from 2808.67 tonnes to 10,230.52 tonnes from years 2007 to
2022, respectively.

Hence, based on the demand gap and the minimum economic of scale for lime
production, a plant with a capacity of 5,000 tonnes per annum is selected.

2. Production Programme

It is assumed that the lime plant will start at 70% in the first year, and then raise its
production by 85% in the second year and finally operates at 100% capacity in the third
year.




107-7
IV. MATERIALS AND INPUTS

A. MATERIALS

The principal raw material for the production of lime is limestone. This raw material is a
sedimentary rock dominantly composed of carbonate minerals, particularly carbonates of
calcium and magnesium. The commonly known chemical composition of limestone is
calcium oxide, (CaO), and carbon dioxide, (CO
2
). However, small amounts of impurities
such as silica and aluminum may be present in lime stone mineral. The annual
requirement of this raw material is shown in Table 4.1.

Table 4.1
ANNUAL RAW & AUXILIARY MATERIALS REQUIREMENT


Cost 000 Birr

No.

Description

UOM

Qty
F L T
1 Lime Stone Tone 9,000 - 990 990
2 Packing material, 50 kg
bag
Pcs 100,000 - 250 250
Total -- 1240 1240

B. UTILITIES

The utilities required are fuel oil/Mazut for boiler, electric power, and water for process
as well as for general purpose. The annual requirement of these utilities is indicated in
Table 4.2.


107-8
Table 4.2
ANNUAL REQUIREMENT OF UTILITIES

Sr.
No.
Description Unit of
Measure
Qty Cost ('000 Birr)
1. Electricity KWh 185,000 87.616
2. Water m
3
1000 10
3. Fuel oil/Mazut m
3
1200 7030.7

Grand Total 7074.616

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Process Description

The principal unit operation-taking place in a lime production is calcinations, which is
carried out in kilns of appropriate design depending upon the raw materials
characteristics. To-date two types of kilns are known. These are vertical shaft kilns and
horizontal rotary kilns. For the envisaged plant a horizontal rotary kiln is found to be
appropriate for the calcination process. A quarried or mined- limestone raw material is
first crushed and screened to produce the required size before it is fed to the kiln. In the
horizontal rotary kiln a decomposition reaction takes place at a high temperature ranging
(900-1100) degree centigrade.

The burnt lime stone results into calcium oxide (C
a
O) and carbondioxide (CO
2
). The
lime thus formed is cooled in drum cooler to about 80
0
C and then packed for storage or
delivery.

107-9
2. Source of Technology

MOVERS (INDIA) PRIVATE LTD.
BASAVA BHAMAN, HIGH GROUNDS
FAX 91-802263606

The above-mentioned company is a leading Indian Company in the manufacture of
cement, lime and mineral product producing machinery.

B. ENGINEERING

1. Machinery and Equipment

One of the core machines in lime production is the kiln. Others such as crusher, elevator,
belt conveyor are secondary equipments which argument the kiln by preparing and
transporting both the raw and finished materials to and out of the same. The total cost of
machinery and equipment is estimated at about Birr 8.00 million, out of which 6.5million
is required in foreign currency. Lists of required machinery and equipment are shown in
Table 5.1.


107-10
Table 5.1
LIST OF MACHINERY AND EQUIPMENT


Description Qty.
1. Rotary Kiln
2. Cooler
3. Crusher
4. Belt Conveyer
5. Elevator
6. Pump
7. Fan
8. Mist Eliminator
9. Venturi
10. Smoke flue
11. Curtain chains
12. Control Instruments
13. Miscellaneous equipment &
tool
14. Fittings
1
1
1
1
2
3
2
1
1
2

Set
-
-

2. Land, Building and Civil Works

The plant requires a total of 7500 m
2
area of land out of which 3,000 m
2
is built-up area
which includes Processing area, raw material stock area, offices etc. Assuming
construction rate of Birr 2500 per m
2
, the total cost of construction is estimated to be Birr
7.5 million. The total cost, for a period of 80 years with cost of Birr 1 per m
2
, is
estimated at Birr 7,500. The total investment cost for land, building and civil works is
estimated at Birr 7,507,500.


107-11
3. Proposed Location

According to the resource potential study of the region, the raw material is identified in
Sodo and lemo woredas. Based on the availability of raw material infrastructure, utility
and market out let Bue town of Sodo woreda is selected and recommended to be the
location of the envisaged plant.

VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The plant requires both administrative and Technical manpower for its smooth operation
thus, the total manpower requirement by type is listed in Table 6.1 below.

Table 6.1
MANPOWER REQUIREMENT AND LABOUR COST

Salary 000 Birr
Type Qty. Monthly Annually
A. Administrative
1 Manager
2 Exc. Secretary
3 Accountant
4 Purchaser
5 Store Man
6 Guard
7 Driver

1
1
1
1
1
4
1
2500
850
900
550
500
400
450
30,000
10,200
8,400
6,600
6,000
19,200
5,400
Sub Total 9 85,800
B. Technical
1 Production & Technical Head
2 Senior Mechanic
3 Operation /Skilled/
4 Assistant Operators
5 Unskilled workers
6 Technicians

1
3
6
3
9
3
2000
1000
700
500
200
500
24,000
36,000
50,400
18,000
21,600
18,000
Sub Total 25 168,000
Total (A+B) 34 253,800
Benefits 25% 63,450
Grand Total 34 317,250
107-12
B. TRAINING REQUIREMENT

Training of key personnel such as the Production & Technical Head and the senior
mechanics is very essential. Thus, this staffs have to be trained abroad by arranging
training programmes with the machinery supplier. The cost of such training has to be
covered by the suppliers themselves. The rest of the production and technical personnel
can be given onthe-job training during the erection and commissioning period.

VII. FINANCIAL ANALYSIS

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

Construction period 1 year
Source of finance 30 % equity
70 % loan
Tax holidays 3 years
Bank interest 8%
Discount cash flow 8.5%
Accounts receivable 30 days
Raw material local 30 days
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
18.26 million, of which 52 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.
107-13
Table 7.1
INITIAL INVESTMENT COST

Sr. Total Cost
No. Cost Items (000 Birr)
1 Land lease value 600.0
2 Building and Civil Work 7,500.0
3 Plant Machinery and Equipment 8,000.0
4 Office Furniture and Equipment 100.0
5 Vehicle 250.0
6 Pre-production Expenditure* 1,034.2
7 Working Capital 781.2
Total Investment cost 18,265.3
Foreign Share 52

* N.B Pre-production expenditure includes interest during construction ( Birr 884.15 thousand ) and
Birr 150 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 10.8
million (see Table 7.2). The material and utility cost accounts for 76.99 per cent, while
repair and maintenance take 1.05 per cent of the production cost.


107-14
Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %
Raw Material and Inputs 1,240.00 11.48
Utilities 7074.6 65.51
Maintenance and repair 113.65 1.05
Labour direct 152.28 1.41
Factory overheads 50.76 0.47
Administration Costs 101.52 0.94
Total Operating Costs 8,732.81 80.86
Depreciation 1295 11.99
Cost of Finance 772.25 7.15
Total Production Cost 10,800.06 100

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.





107-15

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 = 36 %
Sales Variable Cost

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 4 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 29 % and the net
present value at 8.5% discount rate is Birr 19.21 million.

D. ECONOMIC BENEFITS

The project can create employment for 34 persons. In addition to supply of the domestic
needs, the project will generate Birr 9.3 million in terms of tax revenue.