113.

PROFILE ON AMMONIUM CHLORIDE

 113-2

TABLE OF CONTENTS

PAGE

I. SUMMARY 113-3

II. PRODUCT DESCRIPTION & APPLICATION 113-4

III. MARKET STUDY AND PLANT CAPACITY 113-4

A. MARKET STUDY 113-4
B. PLANT CAPACITY & PRODUCTION PROGRAMME 113-7

IV. MATERIALS AND INPUTS 113-7

A. RAW MATERIALS 113-7
B. UTILITIES 113-8

V. TECHNOLOGY & ENGINEERING 113-9

A. TECHNOLOGY 113-9
B. ENGINEERING 113-10

VI. MANPOWER & TRAINING REQUIREMENT 113-13

A. MANPOWER REQUIREMENT 113-13
B. TRAINING REQUIREMENT 113-14

VII. FINANCIAL ANLYSIS 113-15

A. TOTAL INITIAL INVESTMENT COST 113-15
B. PRODUCTION COST 113-16
C. FINANCIAL EVALUATION 113-17
D. ECONOMIC BENEFITS 113-19

I. SUMMARY

This profile envisages the establishment of a plant for the production of ammonium
chloride with a capacity of 315 tonnes per annum. The project aslo produce 325 tones of
sodium sulphate as a by product. Ammonium chloride is largeley used in the
manufacture of dry cells. Another important use of ammonium chloride is as a metal
cleaner in soldering, as a flux in thinning and galvanizing and pharmaceutical
applications as expectorant.
 113-3

The major raw materials for the production of ammonium chloride are ammonium sulfate
and sodium chloride. Ammonium sulfate have to be imported while sodium chloride is
locally available.

The present demand for the proposed product is estimated at 260 tonnes per annum. The
demand is expected to reach at 675 tonnes by the year 2018.

The total investment requirement is estimated at Birr 7.01 million, out of which Birr 1.5
million is required for plant and machinery. The plant will create employment
opportunities for 24 persons.

The project is financially viable with an internal rate of return (IRR) of 22.93 % and a net
present value (NPV) of Birr 4.56 million, discounted at 8.5%.

The project has a back ward linkage effect with the salt industry and a forward linkage
with the manufacturing sector especially with dry cell industry. The establishment of
such factory will have a foreign exchange saving effect to the country by substituting the
current imports.
 113-4

II. PRODUCT DESCRIPTION AND APPLICATION

Ammonium chloride is a white crystalline solid used as an input in the manufacture of

dry cells. It is also used as a metal cleaner in soldering and as a flux in thinning and
galvanizing as well as some applications in the pharmaceutical sector.

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

The country’s requirement of ammonium chloride is totally met through import. Import
of the product for the past 10 years covering the period 1997-2006 is presented in Table
3.1.

Table 3.1
IMPORT OF AMMONIUM CHLORIDE (TONNES)

Year Import
1997 168.0
1998 83.6
1999 2.1
2000 193.1
2001 135.8
2002 400.0
2003 114.6
2004 43.2
2005 106.5
2006 365.3

Source:- Ethiopian Custom Authority.

As could be seen from Table 3.1, import of the product has been fluctuating from year to
year. However, a close scrutiny reveals that the quantity imported has been generally
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rising although it is characterized by fluctuating. This could be evidenced by grouping

the 10 years data in to three different periods, i.e., 1997-1999, 2000-2002 and 2003-2006.

During the first three years, i.e., 1997-1999 the annual average level of import was 84.6
tonnes while it increased to annual average of 178 tonnes during the second three years
i.e. 2001-2003. The average increase in this period was almost double compared to the
previous three years average. A modest increase is also observed in the last four years
average. The annual average imported quantity during the period 2003-2006 has reached
to a level of about 202 tonnes. Compared to the previous three years, it has shown a total
growth rate of about 13.5% or about 4% annual average growth rate.

The observed fluctuation and the general rising trend has been considered to determine
the current (year 2008) effective demand. To smooth the fluctuation the last two years
average has been taken as the effective demand for the year 2006. Secondly, to account
the increase, a 5% annual growth rate has been applied. Accordingly, current effective
demand is estimated at 260 tonnes.

2. Projected Demand

Demand for ammonium chloride 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 (see Table 3.2).
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Table 3.2
PROJECTED DEMAND FOR AMMONIUM CHLORIDE (TONNES)

Year Projected Demand

2009 286
2010 315
2011 346
2012 381
2013 419
2014 461
2015 507
2016 557
2017 613
2018 675

Demand for ammonium chloride is forecasted to grow from 286 tonnes in the year 2009
to 419 tonnes and 675 tonnes by the years 2013 and 2018, respectively.

3. Pricing and Distribution

The average CIF price of ammonium chloride has been about Birr 15,260 per tonne
Allowing 35% for taxes, port handling, and other expenses Birr 20,601 per tonne is
recommended as a factory-gate price.

The product has to be sold directly to the end user manufacturing industries.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity
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Basing on the market study, the envisaged plant will have a capacity of 315 tonne per
annum working 8 hours a day for 300 days per year.

2. Production Programme

The plant will start to operate at 80% of its capacity in the first year of production and
increase to 90% and 100% during the second third year and thereafter, respectively.

The production programme of the envisaged plant is indicated in Table 3.3.

Table 3.3
PRODUCTION PROGRAMME

Description Year of production

1 2 3-10
Capacity utilization rate (%) 80 90 100
Ammonium chloride(tonnes) 252 284 315
Sodium sulphate (tonnes) 260 293 325

IV. MATERIALS AND INPUTS

A. RAW MATERIALS

The main raw materials for manufacturing of ammonium chloride are ammonium sulphate
and sodium chloride. Ammonium sulphate will be imported while sodium chloride is locally
available abundantly in Afar region, Afdera. The total cost of raw materials is estimated at
Birr 1,295,420, out of which Birr 879,620 will be required in foreign currency. The annual
requirement of raw materials and their respective costs is indicated in Table 4.1.

Table 4.1
ANNUAL REQUIREMENT OF RAW MATERIALS & COST (TONNES)
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Sr. Description Qty. Unit Cost Cost In '000 (Birr)

F.C L.C TC
No (Birr)
.
1 Ammonium sulphate 427 2,060 879.62 - 879.62

2 Sodium chloride 378 1,100 - 415.8 415.8

Grand Total 879.62 415.8 1,295.42

B. UTILITIES

Utilities required for manufacturing ammonium chloride include electric power, water and
furnace oil. The annual utilities requirement of the plant is given in Table 4.2.

Table 4.2
ANNUAL REQUIREMENT OF UTILITIES AND COST

Cost in
Description Unit of Qty. ‘000 Birr
Measure
Electricity kWh 63,000 29.837

Furnace oil m3 28 163.52

Water m3 8,500 27.625

Total 220.982

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Process Description
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Ammonium sulphate and 5 % excess of sodium chloride solution are charged into the
reactor and agitated vigorously while heating. The material so obtained is filtered and
washed repeatedly to remove traces of ammonium chloride. The ammonium chloride
solution is run into crystallizing pan where it is cooled; it is crystallized out in lead-lined
crystallizer.

The washed out effluents of the process need to be neutralized. To make the
manufacturing process environment friendly, it is necessary to have a treatment basin.
The cost of treatment basin is estimated at Birr 68,000. The by product sodium sulphate
is a useful product that has a high demand in the detergent industry.

2. Source of technology

Padm Indusries
Address:5-C/111,Mittal Industrial Estate, Andheri Kurla Road, Marol, Andheri
(E) Mumbai-400059, India
Phone: +(91)-(22)-28593909/28520271 Fax: +(91)-(22)-28595265
Website: http://www.indiamart.com/padmindustries

B. ENGINEERING

1. Machinery and Equipment

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 1,432,000 out of
which Birr 1,217,200 will be required in foreign currency.
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Table 5.1
MACHINERY & EQUIPMENT REQUIREMENT AND COST

Sr. Cost in Birr’000

Description Qty.
No. FC LC Total
1 Reactor fitted with jacket and stirrer 1 486.880 - 486.880
2 Vacuum filter 1 146.064 - 146.064
3 Crystallizer, lead-lined 1 97.376 - 97.376
4 Tray drier 1 60.860 - 60.860
5 Storage tank 1 - 75.180 75.180
6 Solution tank 1 - 96.660 96.660
7 Boiler 1 426.020 - 426.020
8 Miscellaneous and other accessories set - 42.960 42.960
Grand Total 1,217.200 214.800 1,432,000

2. Land, Building and Civil Works

The total land requirement for the envisaged plant is estimated at 1,500 m 2. Out of this
450 m2 is built-up area. 300 m2 is used for the construction of production facility, 80m2 is
used for store and the remaining area i.e. 70m2 is used for office building. Cost of
building construction with at rate of Birr 2,400 per m2 amounts to Birr 1,080,000.

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,
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
 113-11

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
Authority and passed with recommendation to the Land Development and
Administration Authority for decision, while the lease price is the same for both cases.

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.
 113-12

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%

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 31.14 million of which 10% or Birr 3,114,000 will be paid in advance.
The remaining Birr 28.03 million will be paid in equal installments with in 28 years, i.e.,
Birr 1,000,929 annually.

VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT
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In order to run the envisaged plant efficiently, it needs 24 employees. The estimated
annual cost of manpower is Birr 297,000. The detail of which is shown in Table 6.1.
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Table 6.1
MANPOWER REQUIREMENT AND ESTIMATED ANNUAL LABOUR COST

Sr. Req. Monthly Annual Salary

Description
No. No. Salary (Birr) (Birr)
1 Manager 1 3000 36,000
2 Administration + Finance Head 1 2,500 30,000
3 Secretary 1 900 10,800
4 Sales and purchase Head 1 2,500 30,000
5 Production Supervisors 1 1,800
21,600
6 Operator 3 1,800 21,600
7 chemist 1 1,000 12,000
8 Technicians 2 1,200 14,400
9 Laborers 6 2,100 25,200
10 Store keeper 1 600 7,200
11 Guard 4 1,400 16,800
12 Driver 2 1,000 12,000
Sub-Total 24 237,600
Employees benefit 25 % 59,400
Total 297,000

B. TRAINING REQUIREMENT

The training of operators, mechanics and technician would be essential. It has to be

arranged during the erection and commissioning period by machinery suppliers. The cost
of training is estimated at Birr 50,000.
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VII. FINANCIAL ANALYSIS

The financial analysis of the ammonium chloride 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 8.5%
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

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr
7.01 million, of which 17 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 ( ‘000 Birr)

Sr. Cost Items Local Foreign Total

Cost Cost Cost
No.
1 Land lease value 3,114.00 - 3,114.00
2 Building and Civil Work 1,080.00 - 1,080.00
3 Plant Machinery and Equipment 1,217.20 1,500.00
282.8
4 Office Furniture and Equipment 100.00 - 100.00
5 Vehicle 450.00 - 450.00
6 Pre-production Expenditure* 514.19 - 514.19
7 Working Capital 257.48 - 257.48
  Total Investment cost 5,798.47 1,217.20 7,015.67

* N.B Pre-production expenditure includes interest during construction ( Birr 364.19

thousand, training (Birr 50 thousand ) and Birr 100 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 2.63
million (see Table 7.2). The raw material cost accounts for 49.28 per cent of the
production cost. The other major components of the production cost are depreciation,
financial cost and utility which account for 18.63 %, 9.67% and 8.41 % respectively. The
remaining 14.02 % is the share of repair and maintenance, direct labour 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
1,295.42 49.28
Utilities 220.98 8.41
Maintenance and repair
71.60 2.72
Labour direct 142.56 5.42
Labour overheads
59.40 2.26
Administration Costs 95.04 3.62
Land lease cost
- -
Total Operating Costs 1,885.00 71.71
Depreciation 489.70 18.63
Cost of Finance 254.10 9.67
Total Production Cost
2,628.80 100

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 872.09 thousand to
Birr 1.41 million during the life of the project. Moreover, at the end of the project life the
accumulated cash flow amounts to Birr 10.13 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
 113-18

relevant data, the most important ratios such as return on sales which is computed by
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 = 25%

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 4 years.

5. Internal Rate of Return

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
 113-19

than the rate of return that could be earned by alternate investments or putting the money
in a bank account. Accordingly, the IRR of this porject is computed to be 22.93 %
indicating the vaiability of the project.

6. Net Present Value

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 4.56 million which is acceptable.

D. ECONOMIC BENEFITS

The project can create employment for 24 persons. In addition to supply of the domestic
needs, the project will generate Birr 2.05 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. The project has a back ward linkage effect with the salt
industry and a forward linkage with the manufacturing sector especially with dry cell
industry.