89. PROFILE ON PRODUCTION OF

PRECIPITATED SILICA (SILICON DIOXIDE)

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TABLE OF CONTENTS

PAGE

I. SUMMARY 89-3

II. PRODUCT DESCRIPTION & APPLICATION 89-3

III. MARKET STUDY AND PLANT CAPACITY 89-4

A. MARKET STUDY 89-4

B. PLANT CAPACITY & PRODUCTION PROGRAMME 89-7

IV. MATERIALS AND INPUTS 89-7

A. RAW MATERIALS 89-7

B. UTILITIES 89-8

V. TECHNOLOGY & ENGINEERING 89-8

A. TECHNOLOGY 89-8

B. ENGINEERING 89-9

VI. MANPOWER & TRAINING REQUIREMENT 89-10

A. MANPOWER REQUIREMENT 89-10

B. TRAINING REQUIREMENT 89-10

VII. FINANCIAL ANALYSIS 89-11

A. TOTAL INITIAL INVESTMENT COST 89-11

B. PRODUCTION COST 89-12

C. FINANCIAL EVALUATION 89-13

D. ECONOMIC BENEFITS 89-14

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I. SUMMARY

This profile envisages the establishment of a plant for the production of precipitated

silica (silicon dioxide ) with a capacity of 200 tonnes per annum.

The present demand for the proposed product is estimated at 166.83 tonnes per annum.

The demand is expected to reach at 402.03 tonnes by the year 2020.

The plant will create employment opportunities for 33 persons.

The total investment requirement is estimated at Birr 8.33 million, out of which Birr

4.16 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 22 % and a net

present value (NPV) of Birr 4.45 million discounted at 8.5 %.

II. PRODUCT DESCRIPTION AND APPLICATION

Precipitated silica is industrial non-reactive filler which possesses large surface area,

high absorption capacity, and high hardness. It imparts good finish and strength and

balances the required physico- chemical properties of the product, to which it is applied.

Precipitated silica has industrial applications in rubberized foot wear, paint, dyes, printing

ink, and plastic products.

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III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply & Present Demand

Precipitated silica (silicon dioxide) is a non-reactive filler which possesses large surface

area, high absorption capacity and high hardness. Precipitated silica has applications in

rubberized footwear, paint and dyes, printing ink and plastic products.

The country's demand for the product is entirely met through import. Table 3.1 shows

the yearly supply of silicon dioxide during the period 1998 - 2006.

Table 3.1

IMPORT 0F PRECIPITATED SILICA (SILICON DIOXIDE)

Year Qty

(tonnes)

Value

(000 Birr)

1998 22.1 392.35

1999 392.35 172.11

2000 4.22 2,285.89

2001 263.85 1,921.25

2002 184.74 1,222.11

2003 104.13 2,467.43

2004 132.16 1,761.77

2005 129.69 3,217.32

2006 268.25 310.39

Total 1501.49 13750.62

Average 166.83 1527.85

Source: Customs Authority, Annual External Trade Statistics.

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As shown in Table 3.1 the supply from import fluctuates from year to year without any

trend. For example, import during the period 1998-2001 ranges between 4.22 tonnes to

392.35 tone. Likewise import during 2002 – 2006 ranges from 104.13 tonnes to 268.25

tonnes. During the period of analyses highest import was in 392.35 in year 1999 and the

lowest in 2000 ( 4.22 tonnes).

Although the import data is very erratic during 1998-2006, the country has been

importing on the average about 166.83 tonnes of silicon dioxide per year.

In order to determine the present demand the average quantity imported during the period

1998 2006 has been assumed as the effective demand for the year 2007.

Accordingly, the present effective demand for the product is estimated at 166.83 tonnes.

2. Projected Demand

Demand for silicon dioxide grows with the expansion of user industries. The industrial

sector in the past four years was growing at annual average rate of 7% which is adopted

for demand projection. The demand projection executed using this growth rate is shown

in Table 3.2.

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Table 3.2

PROJECTED DEMAND (TONNES)

Year Qty.

2008 178.51

2009 191.00

2010 204.37

2011 218.68

2012 233.99

2013 250.37

2014 267.89

2015 286.65

2016 306.71

2017 328.18

2018 351.15

2019 375.73

2020 402.03

3. Pricing and Distribution

The average C&F price of silicon dioxide in 2006 is found to be Birr 6250/tonne.

Allowing 40% for various chargers an ex-factory price of Birr 8750 per tonne is

recommended.

For this product the suitable distribution system is direct sale to end users. This system is

selected for the reason that the end users for the product are few in number while their

individual consumption is high.

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B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

Based on the outcome of the market study, the capacity of the envisaged plant is about

200 tonne/annum when operating in one shift/day (8 hours/ shift) and 300 days/annum.

The capacity can be doubled of further increased, without increasing any significant fixed

investment cost, by increasing the number of shifts.

2. Production Programme

The production program is related to the forecasted demand. Therefore, the capacity

utilization rate will be, 75% and 85% for the first and second year respectively. Form the

third year onwards full capacity production will be maintained. The production

programme is set by assuming that repair and maintenance works will be carried out

during off-production hours.

IV. MATERIALS AND INPUTS

A. RAW MATERIALS

The principal raw materials are sodium silicate and sulfuric acid and the total annual cost

of these materials is estimated at Birr 1,100,290 (see Table 4.1).

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Table 4.1

ANNUAL RAW MATERIAL REQUIREMENT

(AT FULL CAPACITY)

Cost, 000 Birr Sr.

No

Material Qty.

(Tonnes) Foreign Local Total

1 Sodium Silicate 280 647.22 258.90 906.12

2 Sulfuric Acid 120 138.69 55.48 194.17

Total 785.91 314.38 1100.29

B. UTILITIES

The annual consumption (at full capacity) of electricity and water is about 120,000 kWh

and 1600m3, respectively. Furthermore, coal and kerosene will also be consumed and the

annual requirement of these materials is estimated to be 250 tons and 150 m3,

respectively. The total cost of the above utilities will be Birr 1,241,159.

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

Sodium silicate is dissolved in a pressure vessel using steam which is diluted to obtain

desired concentration of sodium silicate. The sodium silicate solution is then hydrolyzed

with sulfuric acid to obtain precipitated silica. This slurry of precipitated silica is then

filtered through a membrane filter and dried in a spray drier.

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2. Source of technology

The technical data and information are compiled from a document provided by the

National Research development corporation of India.

B. ENGINEERING

1. Machinery and equipment

The list of machinery and equipment of the proposed plant is indicated in Table 5.1 and

the total cost of these items is estimated to be Birr 4,160,700 out of which Birr 3,618,000

is in foreign currency.

2. Land, Building and Civil Works

The total area of the proposed plant is 3000 m2, out of which 1,000 m2 is a built up area.

Therefore, the annual land rent cost is estimated to be Birr 2,400 and the cost of building,

including civil work is about Birr 2,500,000.

3. PROPOSED LOCATION The envisaged plant shall be located in Hossana town, Lemo Woreda of Hadiya Zone.

Table 5.1

LIST OF MACHINERY AND EQUIPMENT

Sr. No

Machinery Qty

1 Boiler 1 2 Pressure vessels 2 3 Tanks (for sodium silicate, with motor gear) 5 4 Filter press 1 5 Spray dryer 1 6 Sulfuric acid storage tank 1 7 Reactors 1

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VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The manpower requirement of the envisaged plant is indicated in Table 6.1. In addition,

the cost of training, which may take place during the erection and commissioning phase

is about Birr 30,000.

Table 6.1

MANPOWER REQUIREMENT AND ANNUAL SALARY COST

Salary, (Birr) Sr.

No

Position Req.

No. Monthly Annual

1 General manager 1 2,500 30,000

2 Production and technical manager 1 2,000 24,000

3 Chemist 1 1,500 18,000

4 Accountant 1 1,200 14,400

5 Secretary 1 600 7,200

6 Operators & Technicians 6 3,600 43,200

7 Ass. Operator 4 1,600 19,200

8 Production Workers 10 2,500 30,000

9 General service 8 1,600 19,200

Benefit (15% BS) 30,780

Total 33 235,980

B. TRAINING REQUIREMENT

No special training arrangement required for the envisaged project.

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VII. FINANCIAL ANALYSIS

The financial analysis of the precipitated silica 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 1 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

8.33 million, of which 51 per cent will be required in foreign currency.

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

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Table 7.1

INITIAL INVESTMENT COST

Sr. Total Cost

No. Cost Items (‘000 Birr)

1 Land lease value 192.0

2 Building and Civil Work 2,500.0

3 Plant Machinery and Equipment 4,160.7

4 Office Furniture and Equipment 125.0

5 Vehicle 450.0

6 Pre-production Expenditure* 620.7

7 Working Capital 281.8

Total Investment cost 8,330.2

Foreign Share 51

* N.B Pre-production expenditure includes interest during construction ( Birr 470.65 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 3.77

million (see Table 7.2). The material and utility cost accounts for 62.05 per cent, while

repair and maintenance take 2.65 per cent of the production cost.

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Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %

Raw Material and Inputs 1,100.29 29.16

Utilities 1241.16 32.89

Maintenance and repair 100 2.65

Labour direct 141.59 3.75

Factory overheads 47.2 1.25

Administration Costs 94.39 2.50

Total Operating Costs 2,724.63 72.20

Depreciation 673.57 17.85

Cost of Finance 375.48 9.95

Total Production Cost 3,773.68 100

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.

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2. Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at

full capacity ( year ) is estimated by using income statement projection.

BE = Fixed Cost = 25 %

Sales – Variable Cost

3. 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 22 % and the net

present value at 8.5 % discount rate is Birr 4.45 million.

D. ECONOMIC BENEFITS

The project can create employment for 33 persons. In addition to supply of the

domestic needs, the project will generate Birr 3.15 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.