Wheat Silo Prefeasibility

USAID FIRMS PROJECT
Pre-feasibility Study Report

Silos for storage of wheat
September 2014
This publication was produced for review by the USAID. It was prepared by KPMG Taseer Hadi & Co. under an
assignment commissioned by Chemonics International under the USAID Firms Project.
Pre-feasibility Report Silos for Storage of Wheat Draft
USAID FIRMS PROJECT
Pre-feasibility Study Report

Silos for storage of wheat
USAID Firms Project Page. i
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Data Page
Contract Number: GBTI II Task Order No. EEM-4-07-07-00008-00
Contractor Name: Chemonics International, Inc.
Name of the Component: <Business Enabling Environment (BEE) or Value

Chain Development (VCD)>
USAID Technical Office: Office of the Economic Growth and Agriculture;

USAID Pakistan
Date of Report: July, 2014
Document Title: Pre-feasibility report on Animal Fattening Project

DRAFT
Authors Name: KPMG Taseer Hadi & Co. Chartered Accountants
Study Design and Methodology: KPMG Taseer Hadi & Co. Chartered Accountants
Photo Credits: N/A
Editing: N/A
SOW Title and Work Plan & USAID Pakistan FIRMS Project
Action ID:
Technical support to conduct pre feasibility studies
of various projects that fall under high economic
growth sectors, Value Chain Development
Component Work Plan Level: 22190, Action ID
number: 7351, SOW no. 2305
Project Area: Khyber Pakhtunkhwa, Pakistan
Key Words: Pre-feasibility report, financial pre-feasibility, wheat

silos project
USAID Firms Project Page. ii
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Abstract:
The USAID Pakistan Firms project aims to assist the Khyber Pakhtunkhwa Board of
Investment and Trade (KPBOIT) in promoting investment and trade in the province. In an
effort to achieve this aim preliminary feasibility studies have been conducted in order to
highlight the investment opportunities available for international and domestic investors.
The focus of these preliminary feasibility studies has been kept on the high economic
growth sectors in KPK.
This report is a part of series of pre-feasibility studies conducted for identified projects. The
information used for the preparation of this report has been gathered from various reliable
sources including economic and statistical surveys carried out by the government of
Pakistan. Competitors data and industry averages have been used as a basis for the
preparation of preliminary financial projections.
This report provides a financial and economic analysis of the opportunities available in the
sector and identifies the potential technical strengths and constraints that may be
encountered by the investor(s) in undertaking the identified project. It aims to help the
reader develop an understanding of the operational aspects of the sector and its growth
potential in the country particularly in the Khyber Pakhtunkhwa province. An outline for a
business plan has been prepared for the identified project which identifies the operational
requirements (equipment, human resource, infrastructure etc.). The analysis is supported
by preliminary financial projections for the first ten years of the business.
USAID Firms Project Page. iii
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Acronyms
GDP Gross Domestic Product
HR Human Resource
IT Information Technology
IRR Internal Rate of return
KIBOR Karachi Inter Bank Offer Rate
KPK Khyber PakhtunKhwa
KPBOIT Khyber Pakhtunkhwa Board of Investment and Trade
NGO Non-Governmental Organization
NPV Net present Value
PKR Pakistani Rupee
ROI Return on Investment
US or USA United States of America
USAID United States Agency for International Development
USD United States Dollar
USAID Firms Project Page. iv
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Contents
EXECUTIVE SUMMARY ................................................................................................... 1
RESULTS OF FINANCIAL PRE-FEASIBILITY .......................................................................... 2
1 PROJECT BACKGROUND AND RATIONALE .......................................................... 3
1.1 INTRODUCTION ...................................................................................................... 3
1.2 INTRODUCTION TO KPBOIT .................................................................................... 4
1.3 OVERVIEW OF THE SECTOR .................................................................................... 5
1.4 GODOWNS DEVELOPMENT/ ADMINISTRATION IN KP .................................................. 6
1.5 WHEAT STOCK POSITIONS IN KP (2013) .................................................................. 8
1.6 WHEAT REQUIREMENTS IN KP .............................................................................. 10
1.7 SILOS PROJECT OVERVIEW ................................................................................... 11
2 FINANCIAL PRE-FEASIBILITY ................................................................................ 14
2.1 STORAGE CAPACITY ............................................................................................. 14
2.2 ESTIMATED PROJECT COSTS................................................................................. 14
2.3 REVENUE ASSUMPTIONS ...................................................................................... 16
3 APPENDIX I: INDICATIVE FINANCIAL STATEMENTS........................................... 23
3.1 PROJECTED BALANCE SHEET ................................................................................ 23
3.2 PROJECTED PROFIT AND LOSS ACCOUNT .............................................................. 25
3.3 CASH FLOW STATEMENT....................................................................................... 27
USAID Firms Project Page. v
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List of Tables
TABLE 1:STORAGE CAPACITY IN KP ..................................................................................... 7

TABLE 2:WHEAT PRODUCTION AND YIELDS IN KP ................................................................. 9
TABLE 3: WHEAT REQUIREMENTS....................................................................................... 11
TABLE 4: PROJECT CAPITAL COST ..................................................................................... 14
TABLE 5: BUILDING AND CIVIL WORKS ............................................................................... 15
TABLE 6: PLANT & MACHINERY .......................................................................................... 15
TABLE 7: UTILITIES ............................................................................................................ 16
TABLE 8: REVENUE ASSUMPTIONS ..................................................................................... 16
TABLE 9: ESCALATION ASSUMPTIONS ................................................................................ 19
TABLE 10: ASSETS USEFUL LIVES...................................................................................... 19
TABLE 11: WORKING CAPITAL ASSUMPTIONS ..................................................................... 19
Disclaimer
The financial projections used in this study should be viewed as approximations and the provincial
government of Khyber Pakhtunkhwa, Khyber Pakhtunkhwa Board of Investment and Trade (BOIT)
and/or their consultants will have no liability, whatsoever, in relation to financial projections included in
this study. These projections assume that the project will be professionally marketed, managed and
maintained under international standards. The investors may undertake their own study prior to
making investment decision.
USAID Firms Project Page. vi
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Executive Summary
Chemonics International is implementing the USAID Pakistan Firms Project that works to
develop a dynamic internationally competitive business sector to accelerate sales,
increase exports, investment, job growth and produce higher value added products and
services. Within the business enabling component, the project has initiated an assistance
program for the Khyber Pakhtunkhwa Board of Investment and Trade (KPBOIT) to help it
meet its mandate promoting investment and trade in the province. The KPBOIT was
created with a mandate to advocate specific investment friendly reforms and advise the
KP government regarding the provision of adequate infrastructure facilities for making the
KP Province business environment more conducive to international investment.
The KPBOIT is considering development of wheat storage silos project in the province for
bulk storage of grains in order to achieve various benefits like assured shelf life of grain
for 2-3 years, easier grain management, lesser land requirement compared to traditional
warehouses and no risk of pilferage. Steel silos are considered to be the best modern
alternative storage technique suitable for KP conditions. The silo capacity of 50,000 MT
has been considered. This facility would have 4 bins, each bin of capacity 12,500 MT.
The project will be offered to the investor(s) selected through competitive bidding
process. Identification of land and obtaining requisite approvals from the provincial
government for construction of the proposed facility in the proposed areas will be the
responsibility of the investor with facilitation from KPBOIT. Depending on the approvals
from provincial government, the investors can be provided land on lease basis, whereas,
construction and operations of the project will be managed by the investors. The
construction of project would be subject to pre-conditions with respect to design approval,
minimum standards to be followed etc. which will be detailed in the project RFPs to be
launched at a later stage. However, this pre-feasibility is based on the assumption that
the investor will arrange land for the project on its own.
USAID Firms Project Page. 1

Results of financial pre-feasibility

The results of this financial pre-feasibility indicate that development of a steel silos
for storage of wheat with a capacity of 50,000 MT will be a profitable financial
investment.
The results of this financial pre-feasibility indicate that the project is capable of generating
following results:
Equity IRR of 21.74% and

Project IRR of 19.13%
Following are the key assumptions/considerations for the investors which were used in
this pre-feasibility and which form basis of projected returns from the project:
Total project outlay is estimated at PKR 512 million, financed through 40% equity
and 60% debt. Total equity contribution will be required at PKR 292 million.
The cost of equity has been assumed at 15%, whereas, cost of debt is estimated
at KIBOR + 3% (13.5% total).
The project is expected to be constructed in a time period of one years.

1 Project Background and

Rationale
1.1 Introduction
The most pertinent aspect, from an investor point of view is that, at present, long term
storage capacity in the form of proper silos is virtually non-existent in the Private sector.
Considering the fact that the Government procures and stores grain as a policy, any
investment in a silo project has an automatic and secure revenue stream in the form of
rentals.
Godowns and warehouses do exist, but are not purpose built. They do not provide any
significant protection against potential infestation. They cannot be made gas
impermeable to facilitate fumigation. They do not have temperature or humidity control.
The need of the industry today is, concrete or metal silos, which can store up to 50,000
tons of grain and can effectively be fumigated and provide protection against insect
infestation. The Silo project will also ensure bringing the grain storage industry in
Pakistan in line with international best practices in multi-grain storage and handling. This
will improve international donor support to our country in this industry and also encourage
private sector investment in the agri-industry leading to improved operational efficiencies.
In order to enhance KP provinces food security by increasing the long term multi-grain
storage and management capacity of the province, The KPBOIT has conceived an idea
to develop silo projects for wheat storage.
This study has been prepared to determine the financial feasibility of setting up and
operating grain silo project.

1.2 Introduction to KPBOIT

Khyber Pakhtunkhwa Board of Investment and Trade (KPBOIT) is established for the
promotion of trade and investment activities in Khyber Pakhtunkhwa (KPK). Government
of Khyber Pakhtunkhwa is committed to bring economic prosperity in the Province
through industrial and trade development and delegated this role to KP-BOIT.
KP-BOIT has accepted this challenging task towards achievement of its mission under
the leadership of a dynamic Board Members comprising of eminent people of public and
private sectors.
High motivation and commitment is there to achieve the vision to flourish the investment
and trade in Khyber Pakhtunkhwa making it most favorite investment destination for
investors.
Our land is blessed with abundance of natural resources of Oil & Gas, Hydel Power
Generation, Tourist Destinations, Mines and Minerals along with Agriculture. The
Province is located at an outstanding geographical location.
KPBOIT is striving for exploiting the tremendous potential of the Province into reality and
is focused on meeting its important objective of facilitating local and foreign investors
desirous of benefiting from this huge potential of the KPK. Our aim is creating an
attractive business environment through proactive policy advocacy both at the Provincial
and Federal level. Another important role of awareness among investors is to the
tremendous opportunities available for investment in KPK and therefore facilitating them
for undertaking such investment as a joint venture partners.
We also act as a focal point of contact for both foreign and domestic investors providing
information and assistance in coordination with other Government Departments and
Agencies.
KPBOITs objectives are:

To flourish and revive the investment climate of Khyber Pakhtunkhwa and

to make it a lucrative investment friendly destination.
To provide one window operation facility to investors by proactively engaging with all
stakeholders to ensure successful investments.
To act as a bridge between investors and all related
government and semi Government Departments/Organizations.
Advise the Provincial Government to create environment for
investment through advocacy of specific investment friendly and
comprehensive Public Private Partnership policies.
1.3 Overview of the sector

Pakistan is primarily an agrarian economy with the agriculture sector contributing over
22% to the national GDP. Pakistan has two principal crops seasons, namely the kharif,
the sowing season of which begins in April-June and harvested during October-
December while rabi, begins in October-December and harvested in April-May. Besides
this, KPs prime natural resources are arable land and water. About 58% of KP's total
land area is under cultivation and is watered by multiple resource with 78% watering
through canals.
Wheat is the main Pakistani dietary staple and the GOP considers it the key strategic
commodity. 80 percent of farmers (45 percent of the total population) depend on it for
their livelihood. As a result, it is the basis of the countrys food security.
Considering the above, the GOPs agricultural policy is heavily centered on wheat
through price support programs, storage strategies and export interventions. In 2013/14
wheat production is forecast at 24.0 million tons, up three percent from last year. The
Government of Pakistan (GOP) raised the procurement price 14 percent for the current
years crop from Rs.1050 per 40 kg to Rs.1200 per 40 Kg. (source: PASSCO)
Grain storage in Pakistan is primarily in the public sector and is the responsibility of
Pakistan Agricultural Storage and Services Corporation (PASSCO) as well as the four
provincial food departments. PASSCO and the provincial departments are also

responsible for regulation of agricultural commodity markets and for activities of provincial
seed and fertilizer storage agencies.
Self-sufficiency in food grains requires adequate facilities for its storage. The existing
storage facilities of the kind envisioned are insufficient for the large increase in
production. Large-scale grain storage problem exist due either to traditional methods of
seed storage or shortage of commercial grain storages and their management.
This, therefore, presents a highly lucrative opportunity for investing in the agribusiness
value chain for best practice storage solutions of agricultural produce where current
post-harvest losses can be transformed into economic gain.
1.4 Godown development/ Administration in KP

Food Department, Government of KP is responsible for Godowns development and
administration. Food Department is administrative department of Government of KP
headed by Secretary Food whereas Food Directorate KP is an attached Department. The
Department is organized down at District Level. District Food Controller holds the charge
of Field Office at District Level.
There are 17 godowns in various districts of the Province with a covered storage capacity
of 368,300 tonnes. The NRC Azakhel is the biggest godowns with a capacity of 130,000
tonnes where reserve stocks are kept for supplies to deficit districts as and when required
whereas Peshawar godowns havening capacity of 50,500 tonnes cater for the
requirements of Peshawar and Khyber Agency and D.I.Khan with a capacity of 57,500
tonnes caters for D.I.Khan, Tank and South Waziristan Agency. Other godowns cater for
the needs of the concerned districts (source: PASSCO; Food Department GoKP).
No development schemes are presently under execution in the Food Department. Some
of the godowns need significant repairs.
The GOP has launched a scheme under the ADB Agriculture Loan-II covering Agriculture
and Food Sector. Schemes for strengthening storage capacity in the Province needs to
be forwarded to MINFAL for concept clearance which may be expedited. Structural study

of the Food Department is also required for which a scheme can be sent to MINFAL for
concept clearance under the said loan programme.
Most of the godowns in various cities are old buildings having now come in the centers of
urban areas. Use of the facility as stores has now become underutilization of all asserts
and hence relocation of the stores at some of urban centers needs consideration.
Table 1:Storage capacity in KP

2012-13 (Tonnes)
Khyber Pakhtunkhw a 368,300
District
Abbottabad 11,500
Bannu 8,600
Charsadda 3,500
Chitral 14,500
D.I.Khan 57,500
Dir Low er 9,600
Hangu 4,500
Haripur 7,500
Karak 3,000
Kohat 13,600
Lakki 1,000
Malakand 16,300
Mansehra 4,200
Mardan 21,500
Now shera 130,400
Peshaw ar 50,500
Shangla 500
Sw at 9,100
Tank 1,000
Source: Agriculture Statistics, Food Dept. KP

1.5 Wheat stock positions in KP (2013)
426
426
424
419
395
395
450
383
350
400
308
350
242
300
MT '000'
250
183
200
104
150
100
50
-
July
January
December
June
October
September
February
August
May
November
March
April
Source: Agriculture Statistics, Food Dept. KP

Table 2:Wheat Production and yields in KP

2012-13
Yield per
Area Production
Hectare
KPK Province 636,309 1,149,873 1,807
Abbottabad 14,472 22,901 1,582
Bannu 9,548 16,974 1,778
Battagram 7,477 14,493 1,938
Buner 47,872 74,975 1,566
Charsadda 29,643 74,814 2,524
Chitral 8,156 17,109 2,098
D.I.Khan 41,636 72,420 1,739
Dir Low er 26,750 49,802 1,862
Dir Upper 21,242 40,466 1,905
Hangu 12,004 17,450 1,454
Haripur 37,713 66,901 1,774
Karak 17,987 7,359 409
Kohat 29,355 49,904 1,700
Kohistan 1,392 2,607 1,873
Lakki 21,663 22,162 1,023
Malakand 26,697 32,473 1,216
Mansehra 37,763 88,991 2,357
Mardan 41,865 80,694 1,927
Now shera 23,058 57,377 2,488
Peshaw ar 36,952 81,399 2,203
Shangla 24,373 36,324 1,490
Sw abi 46,991 91,624 1,950
Sw at 59,853 106,694 1,783
Tank 11,847 23,960 2,022
Source:- Agriculture Statistics, Food Dept. KP
Note: Area in Hectares, Production in Tonnes & Yield in Kgs

1.6 Wheat requirements in KP

KP has always been a wheat deficit province, the short fall is recouped through
allocations made by the Ministry of Food, Agriculture and Livestock (MINFAL) from
indigenous wheat or imports from abroad. Annual wheat requirement of the province is
based on the population of the NWFP (settled areas) plus population of FATA and
Afghan Refugees living in the province at prescribed scale of 124kg per head per annum.
Food Department KP provides wheat of Flour Mills for consumption of general public on
subsidized rates. KP Govt. Finance Department allocates budget for this purpose for
each financial year.
The subsidy is worked out on the actual releases of wheat to settled areas as well as
FATA. The subsidy is identified in consultation with Accountant General KP; KP Finance
Department, MINFAL, PASCO or Punjab Food Department.

Table 3: Wheat requirements

Total
Difference
Dom estic Wheat Wheat Net Availability
2012-13 (Deficit/
Issue Requirem ent Production Availability (Net avial+
Access)
Releases)
Khyber Pakhtunkhw a 460.00 2,890.00 1,148.00 1,033.00 1,493.00 (1,857.00)
Abbottabad 24.00 124.00 23.00 20.70 45.00 (103.00)
Bannu 17.00 110.00 17.00 15.30 32.00 (95.00)
Battagram 6.00 47.00 14.00 12.60 19.00 (35.00)
Buner - 96.00 75.00 67.50 - (28.00)
Charsadda 23.00 168.00 75.00 67.50 91.00 (101.00)
Chitral 12.00 50.00 17.00 15.30 27.00 (34.00)
D.I.Khan 65.00 148.00 72.00 64.80 130.00 (83.00)
Dir Low er 16.00 128.00 50.00 45.00 61.00 (83.00)
Dir Upper 11.00 93.00 40.00 36.00 47.00 (57.00)
Hangu 6.00 54.00 17.00 15.30 21.00 (39.00)
Haripur 23.00 103.00 67.00 60.30 83.00 (43.00)
Karak 8.00 75.00 7.00 6.30 14.00 (68.00)
Kohat 11.00 98.00 50.00 45.00 56.00 (53.00)
Kohistan 7.00 52.00 3.00 2.70 10.00 (49.00)
Lakki 10.00 84.00 22.00 19.80 30.00 (64.00)
Malakand 10.00 80.00 32.00 28.80 39.00 (51.00)
Mansehra 22.00 177.00 89.00 80.10 102.00 (97.00)
Mardan 59.00 245.00 81.00 72.90 132.00 (172.00)
Now shera 27.00 144.00 57.00 51.30 78.00 (93.00)
Peshaw ar 55.00 367.00 81.00 72.90 128.00 (294.00)
Shangla 9.00 76.00 36.00 32.40 41.00 (43.00)
Sw abi - 171.00 92.00 82.80 - (88.00)
Sw at 38.00 222.00 107.00 96.30 134.00 (126.00)
Tank 1.00 41.00 24.00 21.60 23.00 (19.00)
Source:- Agriculture Statistics, Food Dept. KP

Note: Quantities in thousands on tonnes
1.7 Silos project overview

Silos are primarily the large tank type high vertical structures made of steel for storage of
food grains in bulk form and in monitored atmosphere. Silo requires mechanized handling
for loading and unloading of material. At port locations which are more prone to corrosion,
concrete silos are constructed while for inland locations, steel silos are better as they are
quite cost effective as compared to concrete silos.

In silos, there are many aspects of grain management, the management is mechanical
rather than manual. In general, the grain may be kept safely in silos for a period of 2 to 3
years.Silo is basically a vertical storage option as compared to godowns which are
horizontal type storages. Hence, silos save a lot of land compared to warehouses. For a
50,000 MT silo, 5 acres land is required. The construction of steel silos can be done
within 10 months including the lead time of importing the steel structures. The erection
time is about 2-3 months. Steel silos are quite easy to maintain.
Storage process:
Grains could come in bulk or in bags. It would then be unloaded from the conveyance it is
brought to the facility (and debagged if in bags at the debagging platform) and would be
loaded into the unloading hoppers. Upon unloading, the wheat grain would be sampled
through a pneumatic system linked to the laboratory. Upon sampling results, the
temporary storage hopper would dispatch the grains into conveyor for pre-cleaning
activities like removal of foreign particles and weighing.
Once in the storage bins, the grain will need to be regularly ventilated. The ventilation is
subject to constant temperature controls through probes to maintain the grain quality all
along the storage period.
To protect the grain from different contamination sources, the grain will be fumigated by
spraying as it passes on the loading conveyors. During dispatch, the grain will be taken
out of each bin by a chain conveyor located in the gallery under the bins. A bucket
elevator would be connected to the chain conveyor to carry the grain to the bagging plant.
The wastes accumulated during the process would be conveyed by a separate elevator
to a waste bin to be discharged locally.
The bulk arrivals or bulk procurement facilities would be arranged at the silo site by Food
Department, Government of KP. This would eliminate duplication of activities like
Marking, Filling, Weighing, Bagging, and Loading& Unloading at Mandi or by the
procurement societies.
The bulk arrivals can directly be moved for quality check, followed by cleaning (if the
grain is found suitable) and then for preservation and storage. This option would help in

optimizing the transportation cost between Mandi to storage point and also reduce
hassles of manual handling at Mandi during peak procurement season.

2 Financial pre-feasibility
This section provides various assumptions considered for operational parameters,
revenue stream, cost parameters and other financial assumptions considered for
evaluation of the project. The financial analysis has been performed for 10 operating
years, though the minimum useful life of a steel silo is generally 35 years.
2.1 Storage capacity

Storage capacity considered for the proposed project is 50,000 MT (4 bins of 12,500 MT
capacity each) and the feed rate to the Silo is assumed to be 60 Tonnes / Hour.
The proposed Silo storage facility is assumed to work for 360 days in a year
2.2 Estimated project costs
The estimated cost of grain silo project is PKR 512 million, the breakup of the same has
been tabulated below.
Table 4: Project Capital Cost

Project Capital Cost (PKR)
Land 5 acres @ PKR 1.5 million per acre 7,500,000
Building and civil works 243,219,000
Plant and machinery 179,454,267
Electric, automation and other utilities 46,325,000
Genset and other accessories/ equipment 5,000,000
Furniture, fixtures, office equipment & MIS 5,000,000
Vehicles 4,000,000
Interest during construction 21,336,821
Total Capital Cost 511,835,088
To construct the silo facility, the estimated land requirement is 5 (five) acres (as per
Industry norms).

Table 5: Building and Civil Works

Building and civil works (PKR)
Silos Foundations Trenches & Elevators Pits 157,080,000
Bag Storage Godown with PEB structure 24,225,000
Utility & maintenance workshop PEB structure 8,075,000
Administrative Building 9,520,000
Security Rooms 2,125,000
Laboratory Rooms 2,125,000
Weighbridge RCC base RCC pit & RCC pedestals 969,000
Internal Roads 18,360,000
Parking area and intake pits 17,000,000
Boundary wall including gates, barbed wire etc 3,740,000
243,219,000
Table 6: Plant & Machinery

Plant and machinery (PKR)
Silo & Accessories 102,577,546
Aeration System 5,055,171
Centrifugal Fan 2,386,950
Roof Exhausters 1,858,649
WC Temperature Monitoring System 5,985,039
High/Low Level Switches 133,892
Silo Sweep Augers 2,805,437
Bucket Elevator E1 & Chain Conveyor 2,557,580
Bucket Elevator E2 3,010,112
Silo Loading Chain Conveyors 6,693,449
Return Chain Conveyors 5,044,140
Bucket Elevator E3 & Chain Conveyor 2,180,231
Bucket Elevator for Waste E4 1,002,864
Grain Cleaner CL1 Capacity - 150 TPH 4,391,675
Hopper Bottom Silo 760,165
Bagging System 3,806,509
Hopper Bottom - Dust Silo 974,911
Bucket Elevator Support Tower 4,798,886
Catwalks & Supports - Conveyors 3,125,625
Other accessories 1,467,239
Duties freight & comissioning 18,838,197
179,454,267
Other than the primary plant & machinery, electrical, automation and utility equipment
shall also be required to operate the Silo facilities. The details of the electrical,
automation and other utility equipment are given as table below:

Table 7: Utilities
Electric, automation and other utilities (PKR)
Fire Fighting Arrangements 6,800,000
Weighbridge 2,720,000
DG sets 6,800,000
Transformer 3,060,000
Electric Connection Cost 2,040,000
General panel for low tension 2,550,000
Reversing Switch 1,190,000
RFID Cost 10,200,000
Work Shop Equipment 2,040,000
Lab Equipments 2,040,000
Fumigation Spraying System 3,060,000
Raw Water and Borewell 1,190,000
Emergency Usage Vehicle 2,040,000
Water Tanks (General use) 595,000
46,325,000
2.3 Revenue Assumptions
The sources of revenue for the proposed project are from handling and storage of wheat.
Food grains handling involves loading, unloading, testing, weighing, bagging and
debagging of food grains. On the other hand, storage charges are divided into two parts,
Fixed Charge and Variable Charge.
For the project life, fixed charge shall be payable irrespective of the quantum of food
grains actually handled while the variable charge shall be linked directly to the quantum
of food grains handled.
Revenue assumptions as explained above are tabulated
Table 8: Revenue Assumptions

Revenue assumptions
Receipt and Dispatch Charges Reimbursement
of actual cost
Storage Charges
Variable Charge - PKR/ Ton 100
Fixed Charge - PKR/ Ton 2,000

Power Cost
The power costs have been estimated with reference to the load requirement of 450 KW
with levelized load factor of 21%. The base tariff has been assumed at PKR 20/ KWH.
Fumigation Cost
Fumigation is required twice in a year. For fumigation, about 27 grams of fumigation
material is required which costs around PKR 0.66 per gram.
Cost of fumigation per MT is estimated to be PKR 18.
HR Cost
A total of 20 full employees are estimated to be required including four executives and 16
staff. The monthly average salary of executives is estimated at PKR 60,000 per month
while for rest of staff an average of PKR 20,000 per month has been applied. The
category wise estimated HR requirements are listed below:
Business Head 1
Management Executives 2
Lab Technician 1
Assistant Lab Technician 1
Clerks 1
Silo Operators General 2
Fumigation Expert 1
Weighbridge Operators 2
Electricians - 1
Mechanical staff 2
Peons and Watch Guards 4
Driver 1

Receipt and dispatch charges

Receipt and dispatch charges includes expenses estimated for sampling of wheat,
laboratory testing, weighing, handling of wheat procured and bagging after evacuation.
For receipt and dispatch charges a blended rate of PKR 5 per quintal has been applied.
Receipt and dispatch charges have been assumed to be reimbursed at actual from the
Food Department, KP province.
Repair and maintenance cost

During the initial few years of operations, since the assets are newly built up or installed,
repairs and maintenance expenses would be lower. As the time passes and assets
become older, expenses towards repairs and maintenance increase over period of time.
However, a maintenance fund model has been assumed with costs at 2% of P & M cost.
Insurance cost
Insurance costs have been estimated at 0.5% per annum of the total project costs.
Administrative cost assumption

The administrative costs, based on the standard industry practice, is assumed to be 1%
of the total revenues of the respective year.
Financing assumptions
It is considered that the capital investment required for development of the proposed
project would be funded by a mix of equity and debt in the proportion of 40:60. Equity
shall be put in by the developers while debt would be financed by the financial
institutions.
The debt tenor has been assumed at 1+8 carrying interest at KIBOR plus 300 basis
points.
Escalation assumptions
The following escalation assumptions have been applied for the purposes of financial pre-
feasibility study:

Table 9: Escalation Assumptions

Escalation assumptions
Annual escalation in costs % 8%
Annual escalation in revenue % 8%
Annual escalation in insurance costs % 5%
Depreciation assumptions
The following asset useful life assumptions have been applied for the purposes of
financial pre-feasibility study:
Table 10: Assets Useful Lives

Assets useful life (Years)
Building and civil works 30
Plant and machinery 30
Electric, automation and other utilities 30
Furniture, fixtures & office equipment 10
Vehicles 10
Working capital assumptions
The following working capital assumptions have been applied for the purposes of
financial pre-feasibility study:
Table 11: Working Capital Assumptions

Working capital assumptions
Stores and spares (as % of P & M costs) 5%
Trade debts (days) 30
Trade creditors (days) 30
Capacity Utilization
The first year capacity utilization has been assumed at 60% increasing to 80% during
second year of operations and thereafter maintaining a 90% utilization factor.
Indicative Project returns
The indicative project and equity return have been identified below. The NPV has
been calculated with reference to a hurdle rate of 15%. As the project life is expected to

be over 30 year, a terminal value has also been accounted for while applying a terminal
growth of 2%.
Project IRR 19.13%

Project NPV @15% 112,513,517
Equity IRR 21.74%
Equity NPV @15% 118,726,565
Project performance indicators

250
PKR in millions
200
150
100
50
Year 10
Year 2
Year 9
Year 1
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Revenue Operating profit

PBT PAT

Free cash flows

120
100
PKR in millions
80
60
40
20
-
Year 10
Year 8
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 9
Project free cash flows Equity free cash flows

Appendices

Appendix I: Indicative
Financial Statements
Projected balance sheet

Amounts in PKR
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Fixed Assets 511,835,088 494,423,918 477,012,748 459,601,579 442,190,409 424,779,240
Current Assets
Stores & spares - 11,538,963 12,692,860 13,962,146 15,358,360 16,894,196
Trade debts - 8,712,329 9,586,849 10,449,666 11,285,639 12,188,490
Cash & bank balances 15,000,000 6,773,958 14,348,338 24,970,804 39,952,224 59,345,229
15,000,000 27,025,250 36,628,046 49,382,616 66,596,223 88,427,915
Total Assets 526,835,088 521,449,168 513,640,795 508,984,194 508,786,632 513,207,155
Share Capital & Reserves

Share capital 210,734,035 210,734,035 210,734,035 210,734,035 210,734,035 210,734,035
Retained earnings - 12,467,001 30,002,373 54,065,871 86,412,111 127,878,244
210,734,035 223,201,036 240,736,408 264,799,906 297,146,146 338,612,279
Long term debt 291,771,984 264,158,491 232,817,177 197,244,786 156,870,121 111,044,877
Current liabilities
Creditors/ liabilities - 2,320,481 2,900,771 3,345,945 3,613,620 3,902,710
Tax payable - 4,155,667 5,845,124 8,021,166 10,782,080 13,822,044
Current portion - LT debt 24,329,068 27,613,493 31,341,314 35,572,392 40,374,664 45,825,244
24,329,068 34,089,641 40,087,209 46,939,502 54,770,365 63,549,998
Total equity & liabilities 526,835,088 521,449,168 513,640,795 508,984,194 508,786,632 513,207,155

Amounts in PKR Amounts in PKR

Year 6 Year 7 Year 8 Year 9 Year 10
Fixed Assets 407,368,070 389,956,900 372,545,731 355,134,561 337,723,392
Current Assets
Stores & spares 18,583,616 20,441,977 22,486,175 24,734,793 27,208,272
Trade debts 13,163,569 14,216,655 15,353,987 16,582,306 17,908,891
Cash & bank balances 83,441,777 112,549,048 146,989,575 254,103,950 367,242,518
115,188,962 147,207,680 184,829,737 295,421,049 412,359,681
Total Assets 522,557,032 537,164,580 557,375,468 650,555,610 750,083,073
Share Capital & Reserves

Share capital 210,734,035 210,734,035 210,734,035 210,734,035 210,734,035
Retained earnings 179,391,956 241,981,889 316,789,329 405,081,318 501,481,337
390,125,991 452,715,924 527,523,364 615,815,354 712,215,372
Long term debt 59,033,225 - - - -
Current liabilities
Creditors/ liabilities 4,214,927 4,552,121 4,916,290 5,309,594 5,734,361
Tax payable 17,171,237 20,863,311 24,935,814 29,430,663 32,133,340
Current portion - LT debt 52,011,652 59,033,225 - - -
73,397,816 84,448,657 29,852,104 34,740,257 37,867,701
Total equity & liabilities 522,557,032 537,164,580 557,375,468 650,555,610 750,083,073

Projected Profit and Loss account
Amounts in PKR
Revenue
Receipt and Dispatch Charges 3,000,000 4,320,000 5,248,800 5,668,704 6,122,200
Variable Charge 3,000,000 4,320,000 5,248,800 5,668,704 6,122,200
Fixed Charge 100,000,000 108,000,000 116,640,000 125,971,200 136,048,896
106,000,000 116,640,000 127,137,600 137,308,608 148,293,297
Costs
Recepit and dispatch expenses 3,000,000 4,320,000 5,248,800 5,668,704 6,122,200
Fumigation cost 540,000 777,600 944,784 1,020,367 1,101,996
Power cost 9,797,760 14,108,774 17,142,161 18,513,534 19,994,616
Manager & supervisors - salary cost 2,880,000 3,110,400 3,359,232 3,627,971 3,918,208
Skilled Staff - salary cost 3,840,000 4,147,200 4,478,976 4,837,294 5,224,278
Other overheads 1,000,000 1,080,000 1,166,400 1,259,712 1,360,489
Repair & maintenance costs 4,615,585 4,984,832 5,383,619 5,814,308 6,279,453
Insurance costs 2,559,175 2,763,909 2,985,022 3,223,824 3,481,730
Depreciation 17,411,170 17,411,170 17,411,170 17,411,170 17,411,170
45,643,690 52,703,886 58,120,163 61,376,883 64,894,140
Margin 60,356,310 63,936,114 69,017,437 75,931,725 83,399,157
Other costs
Admin & general expenses 1,060,000 1,166,400 1,271,376 1,373,086 1,482,933
Financial costs 42,673,642 39,389,218 35,661,396 31,430,319 26,628,046
43,733,642 40,555,618 36,932,772 32,803,405 28,110,979
Profit before tax 16,622,668 23,380,497 32,084,664 43,128,320 55,288,178
Tax 4,155,667 5,845,124 8,021,166 10,782,080 13,822,044
Profit after tax 12,467,001 17,535,372 24,063,498 32,346,240 41,466,133

Projected profit and loss (year 6 to 10)
Amounts in PKR
Revenue
Receipt and Dispatch Charges 6,611,976 7,140,934 7,712,209 8,329,186 8,995,521
Variable Charge 6,611,976 7,140,934 7,712,209 8,329,186 8,995,521
Fixed Charge 146,932,808 158,687,432 171,382,427 185,093,021 199,900,463
160,156,760 172,969,301 186,806,845 201,751,393 217,891,504
Costs
Recepit and dispatch expenses 6,611,976 7,140,934 7,712,209 8,329,186 8,995,521
- 1,190,156 1,285,368 1,388,198 1,499,253 1,619,194
- 21,594,186 23,321,721 25,187,458 27,202,455 29,378,651
Manager & supervisors - salary cost 4,231,665 4,570,198 4,935,814 5,330,679 5,757,133
Skilled Staff - salary cost 5,642,220 6,093,597 6,581,085 7,107,572 7,676,178
Other overheads 1,469,328 1,586,874 1,713,824 1,850,930 1,999,005
Repair & maintenance costs 6,781,809 7,324,354 7,910,302 8,543,126 9,226,576
Insurance costs 3,760,268 4,061,090 4,385,977 4,736,855 5,115,804
Depreciation 17,411,170 17,411,170 17,411,170 17,411,170 17,411,170
68,692,778 72,795,306 77,226,037 82,011,227 87,179,231
Margin 91,463,983 100,173,995 109,580,808 119,740,166 130,712,273
Other costs
Admin & general expenses 1,601,568 1,729,693 1,868,068 2,017,514 2,178,915
Financial costs 21,177,466 14,991,058 7,969,485 - -
22,779,034 16,720,751 9,837,554 2,017,514 2,178,915
Profit before tax 68,684,949 83,453,243 99,743,254 117,722,652 128,533,358
Tax 17,171,237 20,863,311 24,935,814 29,430,663 32,133,340
Profit after tax 51,513,712 62,589,933 74,807,441 88,291,989 96,400,019

Cash flow statement
Amounts in PKR
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Profit before taxation - 16,622,668 23,380,497 32,084,664 43,128,320 55,288,178

Adjustment of non-cash items
Depreciation - 17,411,170 17,411,170 17,411,170 17,411,170 17,411,170
Financial charges - 42,673,642 39,389,218 35,661,396 31,430,319 26,628,046
- 76,707,479 80,180,884 85,157,230 91,969,809 99,327,393
Working capital changes
current assets - (20,251,292) (2,028,417) (2,132,102) (2,232,188) (2,438,687)
current Liabilities - 2,320,481 580,290 445,174 267,676 289,090
- (17,930,811) (1,448,127) (1,686,929) (1,964,512) (2,149,598)
- 58,776,668 78,732,757 83,470,301 90,005,296 97,177,796

Taxes paid - - (4,155,667) (5,845,124) (8,021,166) (10,782,080)
Interest paid (21,336,821) (42,673,642) (39,389,218) (35,661,396) (31,430,319) (26,628,046)
Cash flow from Operations (21,336,821) 16,103,026 35,187,872 41,963,781 50,553,811 59,767,670
Capital expenditure (490,498,267)
Equity 210,734,035
Debt 316,101,053 (24,329,068) (27,613,493) (31,341,314) (35,572,392) (40,374,664)
Total cash generated 15,000,000 (8,226,042) 7,574,380 10,622,467 14,981,420 19,393,005

Opening cash - 15,000,000 6,773,958 14,348,338 24,970,804 39,952,224
Closing cash 15,000,000 6,773,958 14,348,338 24,970,804 39,952,224 59,345,229

Amounts in PKR
Profit before taxation 68,684,949 83,453,243 99,743,254 117,722,652 128,533,358

Adjustment of non-cash items
Depreciation 17,411,170 17,411,170 17,411,170 17,411,170 17,411,170
Financial charges 21,177,466 14,991,058 7,969,485 - -
107,273,585 115,855,471 125,123,909 135,133,822 145,944,528
Working capital changes
current assets (2,664,499) (2,911,447) (3,181,530) (3,476,936) (3,800,064)
current Liabilities 312,217 337,194 364,170 393,303 424,767
(2,352,282) (2,574,253) (2,817,360) (3,083,633) (3,375,296)
104,921,303 113,281,218 122,306,549 132,050,189 142,569,231

Taxes paid (13,822,044) (17,171,237) (20,863,311) (24,935,814) (29,430,663)
Interest paid (21,177,466) (14,991,058) (7,969,485) - -
Cash flow from Operations 69,921,792 81,118,923 93,473,752 107,114,375 113,138,568
Capital expenditure
Equity
Debt (45,825,244) (52,011,652) (59,033,225) - -
Total cash generated 24,096,548 29,107,271 34,440,527 107,114,375 113,138,568

Opening cash 59,345,229 83,441,777 112,549,048 146,989,575 254,103,950
Closing cash 83,441,777 112,549,048 146,989,575 254,103,950 367,242,518

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Wheat Silo Prefeasibility

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USAID FIRMS PROJECT

Pre-feasibility Study Report

USAID FIRMS PROJECT

Pre-feasibility Study Report

USAID Firms Project Page. i

Contractor Name: Chemonics International, Inc.

Name of the Component: <Business Enabling Environment (BEE) or Value

USAID Technical Office: Office of the Economic Growth and Agriculture;

Date of Report: July, 2014

Document Title: Pre-feasibility report on Animal Fattening Project

Authors Name: KPMG Taseer Hadi & Co. Chartered Accountants

Photo Credits: N/A

Project Area: Khyber Pakhtunkhwa, Pakistan

Key Words: Pre-feasibility report, financial pre-feasibility, wheat

USAID Firms Project Page. ii

USAID Firms Project Page. iii

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TABLE 1:STORAGE CAPACITY IN KP ..................................................................................... 7

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Results of financial pre-feasibility

Equity IRR of 21.74% and

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1 Project Background and

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1.2 Introduction to KPBOIT

KPBOITs objectives are:

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To flourish and revive the investment climate of Khyber Pakhtunkhwa and

1.3 Overview of the sector

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1.4 Godown development/ Administration in KP

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Table 1:Storage capacity in KP

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1.5 Wheat stock positions in KP (2013)

Source: Agriculture Statistics, Food Dept. KP

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Table 2:Wheat Production and yields in KP

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1.6 Wheat requirements in KP

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Table 3: Wheat requirements

Source:- Agriculture Statistics, Food Dept. KP

1.7 Silos project overview

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2.1 Storage capacity

2.2 Estimated project costs

Table 4: Project Capital Cost

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Table 5: Building and Civil Works

Table 6: Plant & Machinery