58.

PROFILE ON RECYCLING OF PLASTIC

58-2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

58-3

II.

PRODUCT DESCRIPTION & APPLICATION

58-3

III.

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

58-4 58-4 58-7

IV.

MATERIALS AND INPUTS A. RAW MATERIALS B. UTILITIES

58-7 58-7 58-8

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

58-8 58-8 58-9

VI.

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

58-10 58-10 58-10

VII.

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

58-12 58-12 58-13 58-14 58-15

58-3 I. SUMMARY

This profile envisages the establishment of a plant for the recycling of plastic with a capacity of 360 tonnes per annum.

The present demand for the proposed product is estimated at 38,410 tonnes per annum. The demand is expected to reach at 76,601 tonnes by the year 2022.

The plant will create employment opportunities for 72 persons.

The total investment requirement is estimated at Birr 2.35 million, out of which Birr 1.14 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 27.28 % and a net present value (NPV) of Birr 1.81 million, discounted at 8.5%.

II.

PRODUCT DESCRIPTION AND APPLICATION

The project envisaged here is the reclaiming of thermoplastic materials to their original state of polyethylene, polypropylene, polyurethane, polystyrene or polyvinyl chloride (PVC) granules and powder.

The recycling of waste plastic materials to their original states enables, with proportionate compounding of additives and fillers, to locally avail basic raw material used in the manufacture of PVC floor tiles, ball point pen cases, switch boxes, crates, cups and, extruded pipes, sewerage PVC pipes, and plastic twines or ropes.

58-4

III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

The plastic waste recycling plant envisaged here is expected to produce polythelene and P.V.C. According to the data obtained form the CSA Report on Large and Medium Scale manufacturing and Electricity Industries Survey, polythelene constitutes a raw material used in the chemical industry while P.V.C is used in the leather and footwear industry (for sole). Table 3.1 shows the quantity of polythelene and P.V.C consumed by the chemical and leather & footwear industries during 2002-2005. The demand for both products is met through domestic production and imports. However, the supply of the products is

overwhelmingly dominated by imports. On the average, the local supply of polythelene and P.V.C accounted for 6 and 16 per cent, respectively, during the period under reference.

Table 3.1 QUANTITY OF POLYETHYLENE AND P.V.C CONSUMED BY THE CHEMICAL, LEATHER AND FOOTWEAR INDUSTRY (TONNES)

Polythelene Consumed by the Year Chemical Industry Local 2002 2003 2004 2005 Average 428 405 466 584 470.75 Imported 2767 5744 9911 9919 7085.25 Total 3195 6149 10377 10503 7556

P.V.C. Consumed by the Leather & Footwear Industry Local Imported 1499 599 1439 1379 4545 6135 6865 7936 Total 6044 6734 8304 9315 7599.25

1229 6370.25

Source: CSA, Report on Large and Medium Scale Manufacturing and Electricity Industries Survey, 2003-2006.

58-5 Assuming supply was driven by demand, the average annual supply of polythelene and P.V.C for the period under reference, which constitutes domestic production and imports, is considered as the effective demand for the product for the year 2005. The products are widely used in the chemical, leather & footwear industries, which are highly associated with economic growth. The demand for the products is, therefore, influenced by the rate of economic growth. Given the remarkable rate of economic growth the country has achieved recently and the growing demand for plastic products, the demand for polythelene and P.V.C is assumed to grow at the rate of 10%. The present demand for polythelene and P.V.C (i.e. for 2007) is, thus, estimated at 9,142.76 and 9,195.09 tonnes, respectively.

2.

Projected Demand

For the reasons stated above, a rate of growth of 10% is adopted in projecting the demand for poythelene and P.V.C. Assuming the average import shown in Table 3.1 represents the current demand for imported polythelene and P.V.C, the market share of the envisaged plant is estimated at 94% and 84% of the estimated current demand for polythelene and P.V.C, respectively. The projected demand for the products is shown in Table 3.2.

58-6

Table 3.2 PROJECTED DEMAND FOR POLYTHELENE AND P.V.C (TONNES)

Projected Demand Market Share Year Polythelene P.V.C Polythelene P.V.C

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

9,142.76 10,057.04 11,062.74 12,169.01 13,385.91 14,724.51 16,196.96 17,816.65 19,598.32 21,558.15 23,713.96 26,085.36 28,693.90 31,563.29 34,719.62 38,191.58

9,195.09 10,114.60 11,126.06 12,238.67 13,462.53 14,808.79 16,289.67 17,918.63 19,710.50 21,681.55 23,849.70 26,234.67 28,858.14 31,743.95 34,918.35 38,410.18

8,594.19 9,453.61 10,398.98 11,438.87 12,582.76 13,841.04 15,225.14 16,747.65 18,422.42 20,264.66 22,291.13 24,520.24 26,972.26 29,669.49 32,636.44 35,900.08

7,723.88 8,496.27 9,345.89 10,280.48 11,308.53 12,439.38 13,683.32 15,051.65 16,556.82 18,212.50 20,033.75 22,037.12 24,240.84 26,664.92 29,331.41 32,264.55

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 3,500 per tonne.

58-7 The products can get their market outlet through direct sales to customers that include firms in the chemical, leather & footwear industries. The plant can also appoint agents at selected locations.

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

Considering the difficulty of collecting, cleaning and sorting plastic wastes, the minimum plant capacity available has been proposed. The hourly production capacity of the plant is 150 kg. Assuming single shift (8 hours) operation per day and 300 annual working days, the annual production capacity would be 360 tonnes of pelletized plastic.

2.

Production Programme

The production programme is scheduled in such a way that the plant will produce at 75% of its designed capacity in the first year, at 85 % of its designed capacity in the second year, and at 100% in the third year and onwards The gradual capacity build up is envisaged considering the time required for skill development and the market factors.

IV.

MATERIALS AND INPUTS

A.

RAW MATERIALS

The raw material and inputs are different types of thermoplastic wastes such as used articles of polyethylene, PVC, polypropylene, etc.

The annual quantity of waste plastic to be processed at full capacity would be 360 tonnes. It is assumed that the waste would be available free except collection cost which will be considered under the manpower cost.

58-8 The finished product will be packed in 50 kg bags, estimated to cost about Birr 5 per piece. Annual cost will be Birr 36,000.

The plastic waste will be sorted by type and cleaned (in dry form) before it is ready for processing.

B.

UTILITIES

The installed capacity of the plant is about 100 kWh. Annual electricity consumption would be 240,000 kWh, and the corresponding cost will be Birr 114,191.

Water is used for cooling purposes. The water consumption is estimated to be 1 cubic meter per tonne of product. Annual consumption would be 360 cubic meters, and the corresponding cost will be Birr 1,584.

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

The manufacturing process involves the following major operations -Granulation, -Washing, -Drying, -Extrusion and palletizing, and -Packing.

58-9 2. Source of Technology

The technology on recycling plastics can be secured from Taiwan or from European countries especially Italy and Germany.

B.

ENGINEERING

1.

Machinery and Equipment

The machinery and equipment required and cost estimates are shown in Table 5.1.

Table 5.1 MACHINERY AND EQUIPMENT REQUIREMENT AND COST

Cost ('000 Birr) Description 1. Granulator (Crusher) 2. Screw conveyor 3. Washing equipment 4. Two stage dryer 5. Storage tank 6. Extruding/pelletizing machine Total FOB cost Freight and Insurance CIF Inland transport & other local costs Total Landed Cost 987.5 Qty. 1 2 1 1 1 1 FC 91.3 53.6 33.4 234.5 60.1 424.6 897.5 90.0 987.5 LC 148 148 Total Cost 91.3 53.6 33.4 234.5 60.1 424.6 897.5 90.0 987.5 148 1135.5

58-10 2. Land, Building and Civil Works

The total land requirement is about 500m2 the annual rent of which is estimated to be Birr 400.

The total built-up area of the plant is estimated to be 250 square meters. The cost of building is estimated to be Birr 625,000. The remaining area is meant for free space.

3. PROPOSED LOCATION

The envisaged plant shall be located in Awassa town in Awassa Zuria woreda.

VI.

MANPOWER AND TRAINING REQUIREMENTS

A.

MANPOWER REQUIREMENT

The total manpower required for operating the plant will be 72. The manpower list and the corresponding labour costs are shown in Table 6.1.

B.

TRAINING REQUIREMENT

The project requires no special technical know-how. Training has not, therefore, been envisaged.

58-11

Table 6.1 MANPOWER REQUIREMENT AND LABOUR COST

Sr. No. A.

Description

Req. No.

Monthly Salary (Birr)

Annual Salary (Birr)

Administration

1 2 3 4

Manager Secretary Accountant Guard Sub-total

1 1 1 2 5

2,500 800 1,000 400 4,700

30,000 9,600 12,000 4,800 56,400

B.

Production

1 2 3

Raw material collectors M/c operators Supervisor Sub-total Total

60 6 1 67 72

12,000 2,100 800 14,900 19,600

144,000 25,200 9,600 178,800 235,200

58-12 VII. FINANCIAL ANALYSIS

The financial analysis of the plastic recycling 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 Work in progress Finished products Cash in hand Accounts payable

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

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 2.35 million, of which 21 per cent will be required in foreign currency.

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

58-13

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) 16.0 625.0 1,135.5 75.0 200.0 283.6 17.4 2,352.6 21

* N.B Pre-production expenditure includes interest during construction ( Birr 135.61 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 819,680 (see Table 7.2). The material and utility cost accounts for 18.52 per cent, while repair and

maintenance take 6.93 per cent of the production cost.

58-14 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 36.00 115.78 56.77 141.12 47.04 94.08 490.79 222.3 106.59 819.68

% 4.39 14.13 6.93 17.22 5.74 11.48 59.88 27.12 13.00 100

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.

58-15

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 Sales Variable Cost

45 %

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 27.28 % and the net present value at 8.5% discount rate is Birr 1.81 million.

D.

ECONOMIC BENEFITS

The project can create employment for 72 persons. In addition to supply of the domestic needs, the project will generate Birr 1.14 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.