97.

PROFILE ON USED OIL REGENERATION

97-2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

97-3

II.

PRODUCT DESCRIPTION & APPLICATION

97-3

III.

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

97-4 97-4 97-6

IV.

MATERIALS AND INPUTS A. RAW & AUXILIARY MATERIALS B. UTILITIES

97-6 97-6 97-7

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

97-8 97-8 97-9

VI.

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

97-11 97-11 97-12

VII.

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

97-12 97-12 97-13 97-14 97-15

97-3 I. SUMMARY

This profile envisages the establishment of a plant for the regeneration of used oil with a capacity of 6,000 tonnes per annum.

The present demand for the proposed product is estimated at 702.80 tonnes per annum. The demand is expected to reach at 19,974.78 tonnes by the year 2022.

The plant will create employment opportunities for 29 persons.

The total investment requirement is estimated at Birr 12.11 million, out of which Birr 6.12 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 31 % and a net present value (NPV) of Birr 12.08 million discounted at 8.5 %.

II.

PRODUCT DESCRIPTION AND APPLICATION

Used oil regeneration has been utilized for many years in industrialized countries and more recently in developing countries. This development has occurred to reduce the need to import fresh crude oil or lubricating oils and hence decrease the national foreign currency expenditure for the item as well as to prevent pollution of ground water by waste oil.

The used oil regeneration plant is suitable to treat the oils for motor cans (engine and gear); transformers; industrial, (excluding steel-hardening oil and mixture of grease/oil); aviation lubricants; railways; and marine oils (bildge oils from ships).

97-4 III. MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

The project envisages regenerating used lubrication oil. The country's requirement for lubricating oil has essentially been met through imports. Table 3.1 shows the amount of imports of lubricating oil during 1997-2006. As can be seen from the information depicted in the Table, imports exhibit considerable fluctuation. Imports of the product varied from 10288.10 tonnes in 1998 to 155.78 tonnes in 2000. On the average, and 1405.59 tons of the product is imported during the period under reference.

Table 3.1 IMPORTS OF LUBRICATING OIL (TONNES) Imports

Year

1997 489.22 1998 10288.10 1999 458.12 2000 155.78 2001 454.85 2002 367.74 2003 426.70 2004 346.23 2005 603.11 2006 466.03 Average 1405.59 Source: Customs Authority, External Trade Statistics, 1997-2006.

97-5 Assuming supply was driven by demand, the average annual supply of lubricating oil for the period under reference, which constitutes only imports, is considered as the effective demand for the product for the year 2006. The average rate of growth of imports of the product during the reference period is computed to be very high (about 229%). However, a conservative estimate of 25% rate of growth is adopted in estimating the demand for the product. Assuming about 40% of the used oil is regenerated and applying the stated rate of growth, the present demand for regenerated used oil (i.e. 2007) is, thus, estimated at 702.80 tonnes.

2.

Projected Demand

As stated above, a growth rate of 25% is considered in projecting both the domestic and export demand for regenerated used oil. The projected demand for the product is shown in Table 3.2.

Table 3.2 PROJECTED DEMAND FOR REGENERATED USED OIL (TONNES) Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Projected Demand 702.80 878.50 1,098.13 1,372.66 1,715.82 2,144.78 2,680.97 3,351.21 4,189.01 5,236.27 6,545.34 8,181.67 10,227.09 12,783.86 15,979.82 19,974.78

97-6 3. Pricing and Distribution

Based on the CIF price of the external trade statistics for the year 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 2,350 per tonne.

The envisaged plant can use the existing wholesale and retail network to distribute its product.

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

As per the out come of market assessment and the minimum scale of production, an annual capacity of 6,000 tonnes is proposed for establishing a plant that produces used oil regeneration plant assuming on a three shifts of 8 hours per shift and 300 working days per year.

2.

Production Programme

The envisaged plant shall start at 60%, 75% & 85 % capacity in the first, second and third years, respectively. Considering a time needed for development of production skill and market penetration, in the fourth year and then after full capacity production will be achieved.

IV.

MATERIALS AND INPUTS

A.

RAW AND AUXILIARY MATERIALS

The annual raw and auxiliary materials requirement and cost details are given in Table 4.1.

97-7

Table 4.1 ANNUAL REQUIREMENT FOR RAW AND AUXILIARY MATEIRALS AND THEIR COSTS

Sr. No 1 2 3 4 5 6 7 8 9 10 Used Oil

Description

Qty (Tonne) 7,500 570 300 6 30 4 45 Kg 25,000m2 367.50 F.C

Cost, 000 Birr L.C Total

- 2,625.00 2,625.00 240.43 34.50 620.78 0.26 1,500 3.11 3.60 240.43 34.50 3.11 620.78 3.60 0.26 1,500

Sulfuric Acid Bleaching Clay Lime Ammonia Water 23% Common Salt Hydrazine Filter Paper 70gm/m2 Additives 200 liters Drum

- 1,911.00 120.00 120.00

30,000 pcs 1,911.00 -

Total

- 4,272.47 2,786.21 7,058.68

B.

UTILITIES

Utilities required are electricity & water. The annual quantities and cost of utilities are estimated as shown in Table 4.2.

97-8 Table 4.2 ANNUAL UTILITY REQUIREMENT AND COST

Sr. No 1 2 3 Description Electric Power Water Gas oil Total Qty 750,000 kWh 7,200 m3 336,000 liters

Cost, OOO Birr

355.20 72.00 1,401.00 1,828.20

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

The plant described in this profile is based on acid/clay process, which has been successfully applied in many countries. After a coarse filtration, collected oils flow into storage tanks, and then pass through different phases of the following process: Dehydration at 160oc under normal pressure; Neutralization by sulphuric acid; Decolourization by activated bleaching clay; Vacuum distillation at 260oc-280oc, according to the oil viscosity intended; Filtration through filter press to produce neutral lubricating oil; Blending with additives and finally packaging.

The acid /clay process is producing regenerated oil that meets all characteristics required for virgin lubricating oils and from which many types of lubricating oil can be produced. Gas oil can be recovered at the end of the dehydration and the distillation phases, and can be used in the production process.

97-9 Residues from the process are waste water, acid tar, and filter cake. The waste water can be fed in to an oil/water separator and afterwards channeled in to the sewage system. The filter cake can be dumped in any refuse pit, and the acid tar can be stored in a refuse pit for chemicals, neutralized with lime or burnt in the rotating kiln of cement plant.

2.

Source of Technology

The above described technology is available from Central for Industrial Development (ACP-EEC Lome convention) and reproduced by UNIDO and the machinery can be obtained from the following sources: Used Oil Regeneration System (NSH GER) Address: Nanqiaosi Jiangbei District Chongqing, China Phone: oo86-23-67310918 Fax: 0086-23-67310956 http//:www.supplierlist.com/sinonsh33.co

B.

ENGINEERING

1.

Machinery and Equipment

The list of machinery and equipment required for the envisaged plant is given in Table 5.1.

97-10 Table 5.1 MACHINERY AND EQUIPMENT REQUIREMENT AND ESTIMATED COST

Sr. No. 1 2 3 4 5 6 7 8 9

Description Waste oil acceptance Dehydration Plant Acid treatment plant Filtration Plant Intermediate Tanks Blending Plants Filling station Laboratory Equipment Auxiliary equipment Total

Qty. FC 1Set 1Set 1Set 1Set 6 1Set 1 L.S L.S 345.405 1,438.897 463.506 497.782 540.00 545.608 45.34 57.81 775.00 4,709.348

Cost ('000 Birr) LC TC 345.405 1,438.897 463.506 1,412.804 4,709.348 1,412.804 497.782 540.00 545.608 45.34 57.81 775.00 4,709.348 1,412.804 6,122.152

Insurance, Bank, Customs Duty, Etc Grand Total

2.

Land, Buildings & Civil Works

The production building will be made by EGA sheet roof, steel structure with no wall, concrete floor. Taking into consideration space for easy movement and possible future expansion, the total area of the project will be 4,500 square meters the lease value at a rate of Birr 0.625 per square meter and for 80 years will amount to Birr 225,000. The built-up area will be 1000 square meters for production and 600 for office, laboratory etc, and considering a unit cost of Birr 1,800.00 & birr 2,500 for production and office respectively, is estimated at about Birr 3,300,000. Thus, the total cost of land and civil works is estimated at Birr 3,525,000.

97-11 3. Proposed Location

The plant can be located in the capital city of the region it seems to be the most ideal one due to availability of power and other infrastructures for the smooth operation of the plant.

VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

Total manpower required is 29 persons. The details of the manpower requirement and the estimated annual labor cost including employees benefit are given in Table 6.1. Table 6.1 MANPOWER REQUIREMENT AND ESTIMATED LABOUR COST Sr. No. 1 2 3 5 6 7 8 9 10 11 12 13 14 15 16 Job Title General Manager Secretary Production & Technical Head Finance & Administration Head Accountant Accounts Clerk Chemist Cashier Operator Assistant Operator Laborer Mechanic Electrician Driver Guard Sub Total Employees Benefit 25 basic salary Grand Total No. of Persons 1 1 1 1 1 1 1 1 5 4 5 1 1 3 2 29 Salary (Birr) Monthly Annual 2500 30,000 800 9,600 1,800 21,600 1,800 21,600 1,000 12,000 500 6,000 1000 12,000 650 7,800 750x5 45,000 500x4 24,000 250x5 15,000 500 6,000 500 6,000 550 19,800 200x2 4,800 241,200 60,300 301,500

97-12 B. TRAINING REQUIREMENT

The production & technical head, mechanic, electrician and operators need at least one months training on the technology and maintenance during commissioning of the plant. The production and technical manager shall be trained abroad for three months and the total cost of the training is estimated at birr 175,000.

VII.

FINANCIAL ANALYSIS

The financial analysis of the used oil regeneration 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 30 days 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 12.11 million, of which 53 per cent will be required in foreign currency.

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

97-13 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) 225.0 3,300.0 6,122.2 125.0 200.0 823.1 1,324.6 12,119.9 53

* N.B Pre-production expenditure includes interest during construction ( Birr 673.11 thousand ) training (Birr 75 thousand ) and Birr 175 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 million (see Table 7.2). The material and utility cost accounts for 81.34 2.56 per cent of the production cost.

10.92

per cent,

while repair and maintenance take

97-14 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 7,058.68 1828.2 280 180.9 60.3 120.6 9,528.68 859.72 537.01 10,925.41

% 64.61 16.73 2.56 1.66 0.55 1.10 87.22 7.87 4.92 100

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.

97-15

2.

Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at full capacity ( year ) is estimated by using income statement projection.

BE =

Fixed Cost Sales Variable Cost

59 %

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 31 % and the net present value at 8.5 % discount rate is Birr 12.08 million.

D.

ECONOMIC BENEFITS

The project can create employment for 29 persons. In addition to supply of the domestic needs, the project will generate Birr 7.33 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.