Profile On Carbondioxide
Profile On Carbondioxide
Profile On Carbondioxide
PROFILE ON CARBONDIOXIDE
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TABLE OF CONTENTS
PAGE
I. SUMMARY 122-3
A. TECHNOLOGY 122-9
B. ENGINEERING 122-11
I. SUMMARY
This profile envisages the establishment of a plant for the production of carbondioxide
with a capacity of 760 tonnes per annum. The largest single use of gaseous carbon
dioxide is for making carbonated beverages, including soda water. It is also used in fire
extinguishers, as a coolant for a number of special purposes such as chilling golf ball
centers before winding, chilling aluminum rivets to use also as a weak acid (in aqueous
solution).
The major raw materials required are coke and lime stone. Coke has to be imported while
limestone is locally available.
The present demand for the proposed product is estimated at 1,982 tonnes per annum.
The demand is expected to reach at 6,220 tonnes by the year 2020.
The total investment requirement is estimated at Birr 9.14 million, out of which Birr
2.46 million is required for plant and machinery. The plant will create employment
opportunities for 20 persons.
The project is financially viable with an internal rate of return (IRR) of 18.22 % and a
net present value (NPV) of Birr 3.22 million, discounted at 8.5%.
The project has a forward linkage effect with the manufacturing sector. The
establishment of such factory will also help to curb the existing shortage of the product.
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Carbon dioxide is a colorless, odorless, and slightly acid-tasting gas, sometimes is called
carbonic acid gas. Carbon dioxide is used in the manufacture of sodium carbonate
(washing soda); sodium bicarbonate (baking soda); and basic carbonate of lead (white
lead). Also it is used in refrigeration, in carbonated drinks and for extinguishing fires.
A. MARKET STUDY
Carbon dioxide is mainly used for making carbonated beverages, including soda water. It
is also used in fire extinguishers, as a coolant for a number of special purposes such as
chilling golf ball centers before winding, chilling aluminum rivets to use also as a weak
acid (in aqueous solution). The solid form carbon dioxide is used for refrigeration and
freezing ice cream, meat, and other foods. It is used to neutralize excess of caustic in
textile manufacturing operations, aerosol propellant, mining, chemical intermediates,
municipal water treatment, medicine, etc. The demand for the product is met through
local production and import (see Table 3.1.).
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Table 3.1
LOCAL PRODUCTION AND IMPORT OF CARBON DIOXIDE ( TONNES)
As can be seen from the above Table, the share of import from the total supply is
insignificant. During the period of analyses, on average, local production account for
99.97% of the total supply.
The historical supply data reveals that the highest supply, i.e. 1638 tons, was registered in
2006, while the lowest of 427.59 tonnes was registered in 2002.
During the period of analyses, local production of carbon dioxide has registered an
average annual growth rate of 36%, which indicates that the end users of the product has
been growing in the past few years. As a result, the demand for the product is also
increasing. Taking this into account current (2008) effective demand is estimated by
taking year 2006 as a base and applying a 10% annual average growth rate (which is
much less than the observed trend). Accordingly, the current effective demand is
estimated at 1982 tonnes.
2. Projected Demand
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Demand for carbon dioxide will increase with the development of the end users. End
users of the product are mainly found in the manufacturing sector. Considering the past
performance and future development plans an annual average growth rate of 10% is taken
to forecast the future demand for the product. Moreover, in order to estimate the
unsatisfied demand for product local production during 2006 (which is the highest) is
considered as existing level of supply. Accordingly, Table 3.2 shows projected demand,
existing supply and unsatisfied demand.
Table 3.2
FORECASTED DEMAND FOR CARBON DIOXIDE (TONNES)
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 17,000 per tonne.
The envisaged plant can supply its product directly to end users. The plant can also
appoint agents at selected locations.
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1. Plant Capacity
Basing on the market study, the envisaged plant will have a capacity of 760 tonnes per
annum to cover the unsatisfied demand of Carbon dioxide working in two shifts for 300
days per annum.
2. Production Programme
Table 3.3
PRODUCTION PROGRAMME
Sr. Description Year of Production
1 2 3-10
No.
Capacity utilization rate (%) 80 90 100
1 Carbondioxide (tonnes) 608 684 760
A. RAW MATERIALS
Carbondioxide occurs in the products of combustion all carbonaceous fuels and may be
recovered from them in various ways. The process selected for the envisaged plant is
absorption of carbon dioxide from flue gas obtained by burning or using as a raw material
Coke. Coke will be imported while calcium carbonate can be sourced from Derba. The total
cost of raw materials, and auxiliary material is estimated at Birr 10,155,200 out of which
Birr 9,623,200 will be in foreign currency.
Table 4.1
ANNUAL CONSUMPTION OF RAW MATERIALS & COST
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B. UTILITIES
Utilities required for manufacturing of carbondioxide include electric power and water. The
annual utilities requirement of the plant is given in Table 4.2.
Table 4.2
ANNUAL CONSUMPTION OF AUXILARY MATERIALS AND UTILITIES
A. TECHNOLOGY
1. Process Description
the same time steam is generated in the boilers to furnish power for the pumps and
compressors and heat for the lye boiler. The hot flue gases, containing oxygen, carbon
monoxide, nitrogen, dust and some sulphur and organic compounds, in addition to 18%
carbon dioxide are passed through a heat exchanger and economizer. Here the
temperature of the gases is reduced and the excess heat is taken up by the counter
currently flowing strong lye. The gases are scrubbed in limestone packed towers with
water from the coolers to remove sulphur dioxide and dust and to reduce the temperature
to about 38oC. The dilute carbon dioxide is then fed into the bottom of the coke filled
absorption towers where it passes countercurrent to an aqueous solution of sodium
carbonate called weak lye. After absorbing the carbon dioxide, the solution of
bicarbonate, known as strong lye, is pumped through heat exchangers, where the solution
is heated before entry into the lye boiler. The absorbers remove all but about 9% of the
carbon dioxide in flue gas, which is then released to the atmosphere.
The preheated solution of sodium bicarbonate is heated with exhaust steam (from the
compressors) in the lye boilers. Here, at a temperature of about 118 oC, the bicarbonate is
decomposed into sodium carbonate (weak lye), which is returned through heat exchanger
to the absorbers for reuse. The liberated gas, consisting of 99.8% carbon dioxide, escapes
through the rectifying section of the lye boiler, where it warms the entering strong lye
solution. The gas pass through a water cooler, where the temperature is further lowered
and the moisture in the saturated gas is condensed and returned to the weak lye. The
cooled gas is collected in a gas holder. In place of sodium carbonate, other absorbents,
such as aqueous potassium carbonate, mono ethanolamine (10 to 20%) and
triethanolamine may be used.
In the ternary cycle, the carbon dioxide from the gas holder is cooled to 4 oC and raised to
a pressure of 75 psi absolute in the first stage of the primary compressor. The
compressors, usually two sets, are driven by the live steam from the boiler and the
exhaust steam from them is used in the lye boiler.
From the first stage, the gas is passed through a purification system consisting of an oil
separator and a scrubber, containing potassium permanganate solution or potassium
dichromate solution, which oxidizes organic impurities. The gas from the scrubbers,
raised in temperature to about 10oC, enters the second compression stage and is
discharged at a pressure of about 350 psi absolute. The temperature is lowered by water
coolers to 4oC, at which point some of the water and vaporized lubricating oils (such as
glycerin) are condensed. The gas passes through a desiccant drying tower (calcium
chloride), where sufficient water is removed to prevent freezing of the valves. The gas is
compressed to 970 psi absolute in the third stage, passed through a cooler, and liquefied
in a condenser at 26.7oC (critical temperature is 31.35oC). Non-condensable gas is
purged, and the 99.9% liquid carbon dioxide, containing less than 0.1% moisture and free
from organic impurities, is either fed to flash coolers or charged into cylinders.
All the materials to be used in the production of CO 2 are environmentally friendly and the
combustion products are parts of the atmosphere and do not need any treatment before
releasing.
2. Source of Technology
B. ENGINEERING
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The list of production machinery and equipment required for the plant is provided in Table
5.1. The total cost of plant machinery and equipment is estimated at Birr 2,461,000, out of
which Birr 1,968,800 will be required in foreign currency.
Table 5.1
MACHINERY AND EQUIPMENT REQUIREMENT AND COST
Cost in Birr ‘000
Sr. Qty.
Description
No. (No.) FC LC TC
The total land requirement for the envisaged plant is estimated at 1,000 m 2out of this 600
m2 is built-up area. 380 m2 is used for production facility, 170m2 for store and 50m2 is for
office building. Cost of building construction with at rate of Birr 2400 per m 2 amounts to
Birr 1,440,000.
According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation
No 272/2002) in principle, urban land permit by lease is on auction or negotiation basis,
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however, the time and condition of applying the proclamation shall be determined by the
concerned regional or city government depending on the level of development.
The legislation has also set the maximum on lease period and the payment of lease
prices. The lease period ranges from 99 years for education, cultural research health,
sport, NGO , religious and residential area to 80 years for industry and 70 years for trade
while the lease payment period ranges from 10 years to 60 years based on the towns
grade and type of investment.
Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the
entire amount of the lease will receive 0.5% discount from the total lease value and those
that pay in installments will be charged interest based on the prevailing interest rate of
banks. Moreover, based on the type of investment, two to seven years grace period shall
also be provided.
However, the Federal Legislation on the Lease Holding of Urban Land apart from setting
the maximum has conferred on regional and city governments the power to issue
regulations on the exact terms based on the development level of each region.
In Addis Ababa the City’s Land Administration and Development Authority is directly
responsible in dealing with matters concerning land. However, regarding the
manufacturing sector, industrial zone preparation is one of the strategic intervention
measures adopted by the City Administration for the promotion of the sector and all
manufacturing projects are assumed to be located in the developed industrial zones.
Regarding land allocation of industrial zones if the land requirement of the project is
blow 5000 m2 the land lease request is evaluated and decided upon by the Industrial Zone
Development and Coordination Committee of the City’s Investment Authority. However,
if the land request is above 5,000 m2 the request is evaluated by the City’s Investment
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The land lease price in the industrial zones varies from one place to the other. For
example, a land was allocated with a lease price of Birr 284 /m 2 in Akakai-Kalti and Birr
341/ m2 in Lebu and recently the city’s Investment Agency has proposed a lease price of
Birr 346 per m2 for all industrial zones.
Accordingly, in order to estimate the land lease cost of the project profiles it is assumed
that all manufacturing projects will be located in the industrial zones. Therefore, for this
profile, which is a manufacturing project a land lease rate of Birr 346 per m2 is adopted.
On the other hand, some of the investment incentives arranged by the Addis Ababa City
Administration on lease payment for industrial projects are granting longer grace period
and extending the lease payment period. The criterions are creation of job opportunity,
foreign exchange saving, investment capital and land utilization tendency etc.
Accordingly, Table 5.2 shows incentives for lease payment.
Table 5.2
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS
Payment
Grace Completion Down
Scored Point Period Period Payment
Above 75% 5 Years 30 Years 10%
From 50 - 75% 5 Years 28 Years 10%
From 25 - 49% 4 Years 25 Years 10%
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For the purpose of this project profile the average, i.e., five years grace period, 28 years
payment completion period and 10% down payment is used. The period of lease for
industry is 60 years .
Accordingly, the total lease cost, for a period of 60 years with cost of Birr 346 per m 2, is
estimated at Birr 20.76 million of which 10% or Birr 2,076,000 will be paid in advance.
The remaining Birr 18.68 million will be paid in equal installments with in 28 years, i.e.,
Birr 667,286 annually.
A. MANPOWER REQUIREMENT
In order to run the envisaged plant efficiently, it needs 20 employees. The estimated
annual cost of manpower is Birr 263,250. The detail of which is shown in Table 6.1.
Table 6.1
MANPOWER REQUIREMENT AND ANNUAL LABOUR COST
B. TRAINING REQUIREMENT
On-job training will take place during erection and commissioning by experts of the
machinery supplier. The cost of training is estimated at Birr 32,000.
The financial analysis of the carbon dioxide project is based on the data presented in
the previous chapters and the following assumptions:-
70 % loan
Tax holidays 2 years
Bank interest 8.5%
Discount cash flow 8.5%
Accounts receivable 30 days
Raw material local 30 days
Raw material import 90 days
Work in progress 1 days
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days
Repair and maintenance 5% of machinery cost
The total investment cost of the project including working capital is estimated at Birr
9.14 million, of which 22 per cent will be required in foreign currency. The major
breakdown of the total initial investment cost is shown in Table 7.1.
Table 7.1
INITIAL INVESTMENT COST ( ‘000 Birr)
B. PRODUCTION COST
The annual production cost at full operation capacity is estimated at Birr 11.56
million (see Table 7.2). The raw material and utility cost accounts for 87.84 per cent of
the production cost. The other major components of the production cost are depreciation,
financial cost and utility which account for 3.88%, 3.60% and 1.35% respectively. The
remaining 3.34% is the share of direct labour, repair and maintenance, labour overhead
and other administration cost.
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Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)
Items Cost %
Raw Material and Inputs
10,155.20 87.84
Utilities 155.94 1.35
Maintenance and repair
123.05 1.06
Labour direct 126.36 1.09
Labour overheads
52.65 0.46
Administration Costs 84.24 0.73
Land lease cost
- -
Total Operating Costs 10,697.44 92.53
Depreciation 448.10 3.88
Cost of Finance 415.86 3.60
Total Production Cost
11,561.40 100
C. FINANCIAL EVALUATION
1. Profitability
Based on the projected profit and loss statement, the project will generate a profit through
out its operation life. Annual net profit after tax will grow from Birr 775.48 thousand to
Birr 1.29 million during the life of the project. Moreover, at the end of the project life the
accumulated cash flow amounts to Birr 11.40 million.
2. Ratios
In financial analysis financial ratios and efficiency ratios are used as an index or yardstick
for evaluating the financial position of a firm. It is also an indicator for the strength and
weakness of the firm or a project. Using the year-end balance sheet figures and other
relevant data, the most important ratios such as return on sales which is computed by
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dividing net income by revenue, return on assets ( operating income divided by assets),
return on equity ( net profit divided by equity) and return on total investment ( net profit
plus interest divided by total investment) has been carried out over the period of the
project life and all the results are found to be satisfactory.
3. Break-even Analysis
The break-even analysis establishes a relationship between operation costs and revenues.
It indicates the level at which costs and revenue are in equilibrium. To this end, 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 = 20 %
Sales – Variable Cost
4. Payback Period
The pay back period, also called pay – off period is defined as the period required to
recover the original investment outlay through the accumulated net cash flows earned by
the project. Accordingly, based on the projected cash flow it is estimated that the
project’s initial investment will be fully recovered within 5 years.
The internal rate of return (IRR) is the annualized effective compounded return rate that
can be earned on the invested capital, i.e., the yield on the investment. Put another way,
the internal rate of return for an investment is the discount rate that makes the net present
value of the investment's income stream total to zero. It is an indicator of the efficiency or
quality of an investment. A project is a good investment proposition if its IRR is greater
than the rate of return that could be earned by alternate investments or putting the money
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Net present value (NPV) is defined as the total present ( discounted) value of a time
series of cash flows. NPV aggregates cash flows that occur during different periods of
time during the life of a project in to a common measuring unit i.e. present value. It is a
standard method for using the time value of money to appraise long-term projects. NPV
is an indicator of how much value an investment or project adds to the capital invested. In
principal a project is accepted if the NPV is non-negative.
Accordingly, the net present value of the project at 8.5% discount rate is found to be Birr
3.22 million which is acceptable.
D. ECONOMIC BENEFITS
The project can create employment for 20 persons. In addition to supply of the domestic
needs, the project will generate Birr 2.47 million in terms of tax revenue. The
establishment of such factory will also help to curb the existing shortage of the product.
The project has a forward linkage effect with the manufacturing sector.