Pre-Feasibility Study(SERVICES SECTOR)

Establishment of Community Level Multiple Oil Extraction

Facility

PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABAD

MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH

Government of Pakistanwww.parc.gov.pkFebruary 13, 2014

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1st Draft

Contents

1. DISCLAIMER.......................................................................................................................................5

2. PURPOSE OF THE DOCUMENT.......................................................................................................6

3. INTRODUCTION TO SCHEME.........................................................................................................6

4. EXECUTIVE SUMMARY...................................................................................................................7

5. BRIEF DESCRIPTION OF PROJECT.................................................................................................7

6. CRITICAL FACTORS..........................................................................................................................8

7. INSTALLED AND OPERATIONAL CAPACITIES..........................................................................8

8. GEOGHRAPHICAL POTENTIAL FOR INVESTMENT...................................................................8

9. POTENTIAL TARGET MARKET......................................................................................................9

10. PRODUCTION PROCESS FLOW CHARTS....................................................................................9

12. PROJECT COST SUMMARY.........................................................................................................10

12.1: Project Economics..........................................................................................................................10

12.2: Project Financing..........................................................................................................................11

12. 3: Project Cost...................................................................................................................................11

12.4: Space Requirement.........................................................................................................................11

12.5: Machinery and Equipment.............................................................................................................12

12. 6: Raw Material Requirements..........................................................................................................12

12.7: Human Resource Requirement.......................................................................................................12

12.8: Revenue Generation.......................................................................................................................13

13. CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS...........................................................13

14. ANNEXURES...................................................................................................................................14

14.1: Income Statement of the Project.....................................................................................................16

14.2 Summary Statistics..........................................................................................................................17

14. KEY ASSUMPTIONS.......................................................................................................................19

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List of Tables

Table 1. Project Economics ………………………………………………………………………….…8

Table 2. Project Financing ……………………………………………………………………………...9

Table 3: Project Cost ……………………………………………………………………………………9

Table 4: Land Requirement ……………………………………………………………………………10

Table 5: Machinery and Equipment …………………………………………………………………...10

Table 6: Human Resource Requirement ……………………………………………………………….11

Table 7: Oilseeds Processing …………………………………………………………………………..11

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1. DISCLAIMER

This information memorandum is to introduce the subject matter and provide a general idea and

information on the said subject. Although, the material included in this document is based on

data / information gathered from various reliable sources; however, it is based upon certain

assumptions which may differ from case to case. The information has been provided on an ‘as is

where is’ basis without any warranties or assertions as to the correctness or soundness thereof.

Although, due care and diligence has been taken to compile this document, the contained

information may vary due to any change in any of the concerned factors, and the actual results

may differ substantially from the presented information. PARC, its employees or agents do not

assume any liability for any financial or other loss resulting from this memorandum in

consequence of undertaking this activity. The contained information does not preclude any

further professional advice. The prospective user of this memorandum is encouraged to carry out

additional diligence and gather any information which is necessary for making an informed

decision; including taking professional advice from a qualified consultant / technical expert

before taking any decision to act upon the information.

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2. PURPOSE OF THE DOCUMENT

The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs in

project identification for investment. The project pre-feasibility may form the basis of an

important investment decision and in order to serve this objective, the document/study covers

various aspects of project concept development, start-up, and production, marketing, finance and

business management. The document also provides sectoral information, brief on government

policies and international scenario, which have some bearing on the project itself. The purpose of

this document is to facilitate potential investors in banana tissue culture by providing them a

holistic as well as a micro view of business with the hope that such information as provided

herein will help the potential investors in crucial investment decisions. The need to come up with

pre-feasibility reports for undocumented or minimally documented sectors attains greater

imminence as the research that precedes such reports reveal certain thumbs of rules; best

practices developed by existing enterprises by trial and error, and certain industrial norms that

become a guiding source regarding various aspects of business set-up and it’s successful

management. Apart from carefully studying the whole document one must consider critical

aspects provided later on, which form basis of any Investment Decision.

3. INTRODUCTION TO SCHEME

‘Prime Minister’s Youth Business Loan’ program , for young entrepreneurs, with an allocated

budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide subsidized financing at 8%

mark-up per annum for one hundred thousand (100,000) beneficiaries, through designated

financial institutions, initially by the National Bank of Pakistan (NBP) and the First Women

Bank Ltd. (FWBL). Small business loans upto 2 million with tenure up to 8 years, inclusive of a

1 year grace-period and a debt : equity of 90: 10 will be disbursed to SME beneficiaries across

Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwah, Balochistan, Gilgit Baltistan, Azad

Jammu & Kashmir and Federally Administered Tribal Areas (FATA).

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4. EXECUTIVE SUMMARY

The project conceived here envisages establishment of an oil extraction unit with a capacity to

provide a paid facility for processing olive fruit and other oilseeds such as rapeseed, mustard,

sesame, sunflower and canola for catering their domestic edible oil need near to their doorstep.

The project, which is proposed to be located in olive growing areas of Khyber Pakhtunkhwa, is

likely to cost about 1.500 million and earns attractive return.

The cost of the project and return on the establishment worked out here are tentative and subject

to variation depending upon its location and level of fluctuations in the prices of capital inputs,

operational inputs and final product. These tentative figures will however, be firmed up at the

time of appraisal of project by the financial agency when a sponsor submits his request for

financing the unit.

5. BRIEF DESCRIPTION OF PROJECT

Prospect for establishment of a small-scale edible oil extraction facility for processing the

peoples ‘fresh harvested olive fruit and other oilseed son payment, the product and byproduct

such as oil and cake, to be used for food cooking and as an animal feed.

Oilseeds Processing Technology: The small-scale oilseeds processing technology is readily

available in the country.

Location: The proposed business can be done in Potohar region, Khyber Pakhtunkhwa,

Balochistan, and Northern Areas of Pakistan. The unit will be installed at a location convenient

to community in the vicinity to easily bring their fresh olive fruit and other oilseeds especially

rapeseed, canola, and sesame processing for edible oil.

Target Market: The local communities are encouraged to grow more olive fruit and oilseeds for

catering their edible oil needs. In addition to their domestic edible oil needs, they will be able to

feed their animals with the production of byproduct i.e. cake.

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Employment Generation: The proposed project will provide direct employment to at least four people.

6. CRITICAL FACTORS

Individuals considering entering the oil extraction business must carefully consider the following factors:

a) Technical expertise about effective operation and running of plant machinery and equipment

b) Repair & maintenance of plant, availability of spare parts and accessoriesc) Availability of utilities especially electricity; interrupted power supply is very criticald) Liaison with ender users of this facilitye) Availability of skilled manpowerf) Expertise to optimize the returns

7. INSTALLED AND OPERATIONAL CAPACITIES

For this project, it is assumed that the oil extraction facility will start immediately after the

installation of both the units. Average output capacities of olive fruit processing unit and oil

expeller will be about 35 and 40 kg per hour, respectively.

Total Operational Cost: the operational cost of oil expellers estimated as Rs. 8.1 per kilogram of

oilseeds. The detail of fixed and total operational costs worked out based on some assumption is

given as annexure-I & II.

The proposed unit will be consisting of Oil Expeller, Control Panel for units with three phase

WAPDA connection, accessories such as weighing scale, fruit washing trays, waste storage drum

and tub, oil measuring beaker, and outlet oil container etc..

8. GEOGHRAPHICAL POTENTIAL FOR INVESTMENT

The geographical area for oilseeds is the whole country but the focused area for proposed project

is Khyber Pakhtunkhwa and FATA.

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9. POTENTIAL TARGET MARKET

The potential target market is not very much critical her. The designed project will create a

service facility for oilseeds growers and/or domestic users located in the vicinity. The owner will

extend this service to the people for processing their fruit of seed for edible oil extraction on

payment.

10. PRODUCTION PROCESS FLOW CHARTS

11. OILSEEDS PROCESSING

Cleaning: It is a process of removing the inert materials and impurities from the input seed

manually or mechanically. It is assumed here that the seed brought for

crushing has already been clean by the user. This facility can also be

extended at project site with some extra charges.

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Oilseeds Processing

Cleaning

Crushing cum squeezing

Repeat squeezing 3-4 times

Oil Extraction

Cake collection

Crushing cum Squeezing: The input seed is fed to the crusher through the hopper. The seed is

pushed through the edges of moving crusher cum squeezer worm against the stationary concave,

where the oil flows through the underneath holes of the concave into the oil collection tray.

Repeat Squeezing Process: The whole squeezing process is repeated three to four times(3-4

passes). The logic behind the repeating mechanism is to get the maximum output oil through

crushing of input seed.

 Oil collection: The output crude oils collected into the underneath oil collecting tank, from

where it is collected and shifted to the owner’s oil transporting pot or oilcan. The instant filtering

is done with ordinary cotton cloth. The refining is the responsibility of the owner of output oil

before its use as edible oil at home or shelf keeping.

Oil Refining Process: the ordinary oil refining process is very simple and cheap. The output oil is

kept in a settling tank or pot for one week or so. The waste material and any other suspension is

naturally settled down through sedimentation process leaving a clean oil film on the top. The

clean oil is poured down from the top.

12. PROJECT COST SUMMARY

12.1: Project Economics

All the figures in this financial model have been calculated for establishing community level oil

extraction facility. The following table shows internal rate of return, payback period and net

present value of the investment.

Table 1: Project Economics

Description DetailInternal Rate of Return 60%Pay Back Periods (Years) 2.17819Net Present Value(NPV) $7,068,247Benefit-Cost Ratio 2.4353

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12.2: Project Financing

Following table provides details of the equity required and variables related to bank loan;

Table 2: Project Financing

Description DetailsTotal own equity (10%) 129,050Bank Loan (90%) 1,290,500Markup to the Borrower(%age/annum) 8%Tenure of the loan 8Grace Period(years) 1

The above table shows that the bank will provide the loan of amount of worth Rs.1,290,500/

owner having the equity in Rs.129, 050/. The owner will be paid 8% Mark up of the borrowing

amount.

12. 3: Project Cost

Following requirements have been identified for operations of the proposed business.

Table 3: Project Cost

Capital Investment Amount(Rs.)Machinery and Equipment installation 250,000Pre Operating Cost 25,000Office Furniture 25000Total Capital Cost 300,000Initial Working Capital 990,500Total Project Cost 1,290,500

12.4: Space Requirement

The project will be run after the installation of plant machinery (oil expeller) in an owned and/or

a rental shop/shed roughly covering an area of 20’ x 20’. The office/service shop will be located

in the suitable place of village or town whichever is convenient for the entrepreneur. If he has the

surplus money to buy some oilseeds for marketing oil during the free time of plant operation

other than rental/paid services. Then the space requirement for storage of raw seed would be

required.

Table 4: Land Requirement

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Area Required Area(Sq.ft)Monthly Rent Charges(Rs.) Yearly Rent(Rs.)

Store Room/Shed 20’ x 20’ 10,000 120,000Total Rent 10,000 120,000

12.5: Machinery and Equipment

Following table provides list of machinery and equipment required for the establishing at

community oil extraction facility. The plant machinery and equipment is mainly consisting of oil

expeller and operational accessories. The total cost of machinery and equipment is estimated Rs.

1.100 million.

Table 5: Machinery and Equipment

DescriptionQty.

Cost Rs/UnitEstimate cost(Pak Rs.)

Oil expeller unit 1 200,00 200,000Accessories LS 25 25000Installation cost 25000

Total 250,000

12. 6: Raw Material Requirements

Oilseeds (Rapeseed/Mustard, Canola, and Sunflower): the major oilseed crops such as

Rapeseed/Mustard, Canola, and Sunflower were grown on an area of 0.575, 0.877, and 0.027

million hectares with production of 0.203, 0.473, and 0.030 million tons during the year 2011-

12(Economic Survey 2012-13).Generally, farmers grow some rapeseed/mustard and other

oilseeds for boosting up their domestic oil needs.

12.7: Human Resource Requirement

Manpower: The proposed project will create employment opportunities as per following for

running the project during operation.

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Table 6. Human Resource Requirement

Description Nos. Salary per employee per (Rs.)month

Salary/Year

Unit Operator/Owner 1 15,000 180,000Helper(feeding, washing etc.) 1 10,000 120,000

Total 2 300,000

12.8: Revenue Generation

Table 7. Oilseeds Processing

Description UnitAverage Capacity of Extractor kg/h 40Annual Use hrs 1500Efficiency % 70%Operational cost Rs/kg of fresh fruit 8.1Processing charges Rs/kg 25Total Earnings Rs/Year 1500000Total Operational Expenses Rs/Year 486000Gross Profit Rs/Year 1014000

13. CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS1. M/s Technology International

P-29, St # 5-6, Main TalianWala Road, Rehman Colony124_J.B.,Marzipura, Opp. SuriyaMajeed Hospital,Faisalabad – PakistanTel: 041-2591157, 2695716, 2695761Cell: 03009384508Email: techintl@cyber.net.pk

2. M/s Yousaf EngineeringReman Dang WaliGalli, Maqbool Road,Faisalabad – PakistanCell: 03018651191Email:

Prepared By:LIAQAT ALI SHAHIDPrincipal Engineer/PSOAgricultural and Biological Engineering Institute

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National Agricultural Research CentreIslamabadTel: 051-8443610Email: shahidfmi@hotmail.com

Checked By:

DR. TANVEER AHMADDirector/PSOAgricultural and Biological Engineering InstituteNational Agricultural Research CentreIslamabadTel: 051-9255044Email: tanveer_isd@yahoo.com

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14. ANNEXURES DETAILED OPERATIONAL COST CALCULATIONS ARE GIVEN AS UNDER

OIL EXPELLERAnnexure-I

Table 1 Fixed Cost of Oil ExpellerS. No. Description Oil Extraction Unit

1 Purchase price 200,0002 Useful life (Yrs) 103 Yearly use (hrs) 15004 Salvage value 20,000

(10 % of P*) 5 Interest Rate in decimal 0.1

Fixed Cost (Rs/h)1 Depreciation 12

(D = (P-S)/L)2 Interest on Investment 7

(I = (P + S)/(2)*i/Yearly use in hours)3 Taxes, Insurance & Shelter 1

(0.5 % of initial investment)4 Repair & Maintenance 5

0.25 % of P/100 hrs)5 Total Fixed Cost (Rs/h) 25

Annexure-II

Table 2 Total Operational Cost of Oil Expeller

S. No. Parameters Units Quantity1 Machine capacity kg/h 402 Fuel consumption (Electricity) kwh 7.53 Labour requirement men-hrs 3.00

i. Unskilled " 1.50ii Skilled " 1.50

A. Fixed cost Rs/h 25B. Variable cost Rs/h 2461 Labour cost Rs/h 104

i. Unskilled @Rs. 42/h 42ii Semi-Skilled @Rs. 62/h 62

2 Fuel cost (Electricity @Rs.18/kwh) Rs/h 1353 Lubrication cost Rs/h 7

(@5% of fuel cost)C Total Operational Cost Rs/h 254D Total Operational Cost Rs/kg 8.1

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14.1: Income Statement of the Project

Sales (Revenues)Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

1500000 1650000 1815000 1996500 2196150 2415765 2657342 2923076 3215383 3536922Total Operating Charges of Service 486,000 534,600 588,060 646,866 711,553 782,708 860,979 947,077 1,041,784 1,145,963Cost of Service Provided 486,000 534,600 588,060 646,866 711,553 782,708 860,979 947,077 1,041,784 1,145,963

Gross Profit 1,014,000 1,115,400 1,226,9401,349,63

4 1,484,597 1,633,057 1,796,3631,975,99

9 2,173,599 2,390,959Salaries 300,000 330,000 363,000 399,300 439,230 483,153 531,468 584,615 643,077 707,384Rent 120,000 132,000 145,200 159,720 175,692 193,261 212,587 233,846 257,231 282,954Utilities 25,000 27,500 30,250 33,275 36,603 40,263 44,289 48,718 53,590 58,949InsuranceAdvertisingDepreciation 22,500 22,500 22,500 22,500 22,500 22,500 22,500 22,500 22,500 22,500Other Office Expenditure 0 7500 8250 9075 9983 10981 12079 13287 14615 16077Others 12,000 13,200 14,520 15,972 17,569 19,326 21,259 23,385 25,723 28,295Interest on Loan 103240 103240 91669.65 79173.66 65678 51103 35361 18361 0 0Sub - Total 582,740 635,940 675,390 719,016 767,254 820,587 879,544 944,711 1,016,735 1,116,159

Operating Income 431,260 479,460 551,550 630,618 717,343 812,471 916,8191,031,28

8 1,156,864 1,274,800Tax 70,484 88,904 109,131 131,344 158,483 194,202 233,429 276,511 335,553Net Income 431,260 408,976 462,646 521,487 585,999 653,988 722,618 797,859 880,352 939,247

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14.2 Summary Statistics

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Period 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Initial Project Investment 1290500Fixed Cost 300000 0 0 0 0 0 0 0 0 0

Total Variable Cost 990,500 560,200613,97

0673,11

7738,17

9809,74

7888,47

1 975,068 1,070,325 1,175,108Total Project Cost (Fixed Cost +Variable Cost)

1,290,500 0 0 0 0 0 0 0 0 0

Interest on loan 103240 103240 91670 79174 65678 51103 35361 18361 0 0Total cost inclusive interest payment (Outflow)

1,393,740 663,440 705640 752291 803857 860849 923833 993429 1070325 1175108

Revenue generation by Providing extraction oil service 1500000 1650000

1815000

1996500

2196150

2415765

2657342 2923076 3215383 3536922

Salvage value 78,453

Gross Profit(inflow)1,500,00

0 1,650,000181500

0199650

0219615

0241576

5265734

2 2923076 3215383 3615374

Net cash flow (Inflow - Outflow-

1,290,500 106,260 986,5601,109,3

601,244,2

091,392,2

931,554,9

161,733,5

091,929,64

7 2,145,058 2,440,266

Payback Period 2.17819NPV $7,068,246.9IRR 0.603372BCR 2.435342

15. KEY ASSUMPTIONS

Description

Interest Rate 8%Loan Tenure 8 YearsGrace Period 1 YearsDebt Equity Ratio 90:10Sale Price Growth Rate 10%Prepaid Rent Period 1 YearIncrease in Staff Salaries 10%Increase in Office Expense 10%

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