LUBRICATING OIL AND GREASE

MANUFACTURING PLANT

PROMOTOR:

CONSULTANT PHONE NUMBER: 0911002790, [email protected]

GIRARI DISTRICT, KURA JIDA SUB-CITY,

SHEGER CITY ADMINISTRATION, ONRS,
ETHIOPIA

2024

i
 TABLE OF CONTENTS
TABLE OF CONTENTS ........................................................................... ii
LIST OF TABLES AND FIGURES ........................................................ iv
LIST OF TABLES ....................................................................................................... iv
LIST OF FIGURES ..................................................................................................... iv
LIST OF ABBREVIATIONS .....................................................................v
SUMMARY ............................................................................................... vii
1. BACKGROUND INFORMATION .......................................................1
1. 1. INTRODUCTION ................................................................................................ 1
1. 1. 1. Literature Review ........................................................................................ 1
1. 2. THE CITY BENEFIT FROM THE INVESTMENT ............................................ 2
1. 3. OBJECTIVES OF THE STUDY .......................................................................... 3
1. 4. METHODOLOGY AND APPROACH ................................................................ 3
1. 4. 1. Preliminary Assessment and Study Design .................................................. 3
1. 5. PRACTICAL DATA REVIEW OF LUBRICATING OIL AND GREASE......... 4
2. PRODUCT DESCRIPTION AND APPLICATION............................6
2. 1. Products Description of the Industry .................................................................... 6
2. 1. 1. Lubricating Motor Oils, Hydraulic and Brake Fluids ................................ 6
2. 1. 2. Grease ......................................................................................................... 7
2. 3. Recycle Lubricating Oil and Grease ..................................................................... 7
2. 2. Benefits of Recycling Used Oil ............................................................................ 8
3. MARKET STUDY AND PLANT CAPACITY .....................................9
3. 1. MARKET STUDY ............................................................................................... 9
3. 1. 3. Pricing and Distribution............................................................................ 10
3. 2. PLANT CAPACITY AND PRODUCTION PROGRAM .................................. 19
3. 2. 1. Plant Capacity ........................................................................................... 19
3. 2. 2. Production Program ................................................................................. 20
4. MATERIALS AND INPTUS ................................................................21
4. 1. RAW MATERIALS ........................................................................................... 21
4. 1. 1. Design of the Inputs of Lubricating Oil Production ................................. 21
4. 1. 2. Design of the Inputs of Lubricating Oil Production ................................. 21
4. 2. UTILITIES ......................................................................................................... 23
5. TECHNOLOGY AND ENGINEERING.............................................25
5. 1. TECHNOLOGY ................................................................................................. 25
5. 1. 1. Production Process of Lubricating Oil and Grease................................... 25
5. 1. 2. Source of Technology ................................................................................ 27

ii
 5. 2. ENGINEERING ................................................................................................. 28
5. 2. 1. Machinery and Equipment ........................................................................ 28
5. 2. 2. Building and Civil Works .......................................................................... 29
5. 3. Environmental and Social Impact Assessment, ESIA ......................................... 30
6. HUMAN RESOURCE AND TRAINING REQUIREMENT ............32
6. 1. HUMAN RESOURCE REQUIREMENT .......................................................... 32
6. 2. TRAINING REQUIREMENT ............................................................................ 34
7. PROJECT ORGANIZATION AND MANAGEMENT .....................36
7. 1. PROJECT ORGANIZATION ............................................................................ 36
7. 2 IMPLEMENTATION SCHEDULE .................................................................... 38
7. 3. IMPLEMENTATION COST .............................................................................. 40
8. FINANCIAL ANALYSIS .....................................................................43
8. 1. TOTAL INITIAL INVESTMENT COST .......................................................... 44
8. 2. PRODUCTION COST........................................................................................ 45
8. 3. BANK LOAN REPAYMENT SCHEDULE...................................................... 46
8. 4. FINANCIAL EVALUATION ............................................................................ 47
8. 4. 1. Profitability ............................................................................................... 47
8. 4. 2. Ratios ........................................................................................................ 47
8. 4. 3. Break-even Analysis .................................................................................. 48
8. 4. 4. Pay-back Period ........................................................................................ 48
8. 4. 5. Internal Rate of Return, IRR ...................................................................... 48
8. 4. 6. Net Present Value, NPV ............................................................................ 49
8. 5. ECONOMIC AND SOCIAL BENEFITS ........................................................... 49
APPENDIX: FINANCIAL ANALYSIS OF THE LUBRICATING OIL
AND GREASE MANUFACTURING PLANT BASED ON
COMFAR ...............................................................................................50
REFERENCES ..........................................................................................62

iii
 LIST OF TABLES AND FIGURES
LIST OF TABLES
TABLE 3. 1 : DISTRIBUTION OF THE LUBRICATING OIL AND GREASE PRODUCTS ..... 16
TABLE 3. 2 : PRODUCTION PROGRAMME OF THE ENVISAGED LUBRICATING OIL
AND GREASE MANUFACTURING PLANT ............................................................................... 20

TABLE 4. 1 : ANNUAL REQUIREMENT FOR RAW AND AUXILIARY MATEIRALS AND

THEIR COST ................................................................................................................................... 22
TABLE 4. 2 : ANNUAL UTILITY REQUIREMENT AND COST................................................ 24

TABLE 5. 1: LIST OF MACHINERY AND EQUIPMENT FOR LUBRICATING OIL AND

GREASE ........................................................................................................................................... 28
TABLE 5. 2: TOTAL LAND ALLOCATION AND ITS COSTS .................................................. 29

TABLE 6. 1: HUMAN RESOURCE REQUIREMENT AND ESTIMATED LABOR COST (ETB)

.......................................................................................................................................................... 32

TABLE 7. 1 : IMPLEMENTATION COST..................................................................................... 40

TABLE 8. 1 : ASSUMPTIONS RELATED TO THE PROJECT .................................................... 43

TABLE 8. 2 : INITIAL INVESTMENT COST („000 ETB)............................................................ 44
TABLE 8. 3 : ANNUAL PRODUCTION COST AT FULL CAPACITY ....................................... 46
TABLE 8. 4: BANK LOAN REPAYMENT SCHEDULE (IN 000‟ ETB) ..................................... 46

LIST OF FIGURES
FIGURE 3. 1 : LUBRICANTS MARKET SIZE FROM 2023 TO 2034 ........................................... 9
FIGURE 3. 2: INCREMENT OF LUBRICANT PRICE IN THE WORLD.................................... 11

FIGURE 5. 1 : LUBRICATING OIL AND GREASE PRODUCTION PROCESS FLOW SHEET

FROM USED OIL ............................................................................................................................ 27

FIGURE 7. 1 : PROJECT IMPLEMENTATION SCHEDULE ....................................................... 38

iv
 LIST OF ABBREVIATIONS
ABIQUIM : The Brazilian Chemical Industry Association
ADLI : Agricultural Development Led Industrialization
AGOA : African Growth and Opportunity Act
BCI : Brazilian Chemical Industry
CAGR : Compound Annual Growth Rate
COMFAR : Computer Module for Financial Analyses and Reporting
COMESA : Common Market for Eastern and Southern Africa
CRGE : Climate Resilient Green Economy
CSA : Central Statistical Authority
DFQF : Duty Free and Quota Free
EBA : Everything But Arms
EEU : Ethiopian Electric Utility
EIC : Ethiopian Investment Commission
ERC : Ethiopian Railways Corporation
ERCA : Ethiopian Revenues and Customs Authority
ESA : Ethiopian Standard Authority
ESC : Ethiopian Sugar Corporation
EU : European Union
FDI : Foreign Direct Investment
GDP : Gross Domestic Product
GHG : greenhouse gas
GOE : Government of Ethiopia
GTP : Growth and Transformation Plan
IDS : Industrial Development Strategy
IMF : International Monetary Fund
IRR : Internal rate of return
Kg : Kilogram

v
Km : Kilo meter
LDC : Least Developed Countries
Li : liter
LS : Lump sum
Ml : milliliter

m2 : Square meter

M3 : Cubic meter

NBE : National Bank of Ethiopia

NPV : Net present value
ONRS : Oromia National and Regional State
PASDEP : Plan for Accelerated and Sustained Development to End Poverty
SNNPRS : Southern Nations, Nationalities and Peoples Regional State
SSA : Sub-saharan Africa
UN : United Nation
UNIDO : United Nation Industrial Development Organization
USD : United States Dollar
WB : World Bank
WEF : World Economic Forum
WTC : World Trade Center
WTO : World Trade Organization

vi
 SUMMARY
The company envisages the establishment of a plant for the production of Lubricating Oil
and Grease from used oil with a capacity of 1,000. 00 tons and 800. 00 tons of
Lubricating Oil and Grease per annum within 46,904. 50 square meter of land at Girari
District, Kura Jida Sub-City, Sheger City Administration, ONRS.

Lubrication reduces friction and extends the lifespan of machinery and equipment,
playing a vital role across various industries and applications. Two primary types of
lubricants widely used to achieve optimal lubrication are lubricating oils and lubricating
greases.

Lubricating oil is thick fatty oil used to make the parts of a machine move easily and a
mixture of base oil, thickener and additives. Lubricating greases are also a lubricant for
smooth moving of machineries and a mixture of base oil, a thickener, and various
additives.

The country`s requirement of Lubricating Oil and Grease is met through local production
and import. The present (2024) demand for Lubricating Oil and Grease is huge including
import of high. The demand for Lubricating Oil and Grease is high as seen from local
and international studies.

As the raw materials required for the manufacturing of Lubricating Oil and Grease are
identified, the principal raw materials for Lubricating Oil and Grease are used oil from
vehicles and machineries, calcium, bleaching earth, animal fat and adhesives. All raw
materials have to be locally available from importers and local producers.

The total investment cost of the project including working capital is estimated at ETB

vii
137. 00 million. From the total investment, the highest share of cost is accounted by fixed
investment (ETB 122. 99 million or 89. 77%) followed by initial working capital cost
(ETB 8. 85 million or 6. 46%) and pre-operating cost (ETB 5. 16 million or 3. 77%).
There is a huge foreign currency for this project as the machines are available in abroad
from international companies. The required foreign currency of the project is about ETB
38. 10 million or 27. 81% of the initial investment of the project.

The project is financially viable with an internal rate of return (IRR) of 21. 14% and a net
present value (NPV) of ETB 51. 48 million, discounted at 12%. The industry paybacks
the initial investment within 5 years.

The break-even point for sales and capacity utilization are computed at ETB 859. 65
million and 52. 48% respectively, which are very attractive and has less risk for loss
making due to breaking even at low level of capacity utilization and sales.

The project can create employment for 142 persons in permanent basis and some
temporary staffs. The establishment of such factory will have a foreign exchange saving
effect to the country by substituting the current imports of Lubricating Oil and Grease.
The project will also create forward linkage with the service sector such as chemical,
industry, agriculture and others and backward linkage with the chemical, industry,
automobile, and others. The industry generates income for the Government in terms of
tax revenue and payroll tax. The industry will participate in income generating activities
of the societies.

viii
 1. BACKGROUND INFORMATION
1. 1. INTRODUCTION
1. 1. 1. Literature Review
It is estimated that more than 30. 3 billion liters of used oil are produced every year. The
waste of lubricant oil is generated mostly from vehicles and engines. This lubricant waste
has a very high hazardous content from ash, carbon residue, asphaltenes, materials,
metals, water, and other dirty materials produced during lubricants inside the machine.
Used oils as hazardous wastes if disposed directly into the environment, especially rivers,
seas and lakes create problems, such as the problem of disposing of used oil into water
bodies not only contaminate water but also harmful to freshwater and marine life.

The waste of lubricant oil can be produced from various human activities such as
industry, mining, and workshop. Lubricating oil wastes is including B3 waste is
flammable so that if not handled the management and disposal will endanger human
health and the environment. Currently, this liquid waste has been dumped into the
environment and created many problems. Lubricating oil wastes are dumped on the
ground, under a ditch, or sent to a landfill, which is eventually absorbed into the ground or
floats on the water surface. The management of this lubricating oil wastes to make used
oil not pollute the environment and the nature of used oil becomes more harmless or even
can be used again as new oil. Lubricating oil wastes management also aims to create a
healthy environment for people's lives. Moreover, the handling of used oil well done, it
will be able to provide benefits for industries that reuse used oil as a lubricant of various
equipment, because used oil can still be used for lubricant again by way of different use
before.

Components in lubricating oil wastes are hydrocarbons, polymer additives, carbon

particles, water and metals. The content of metals in lubricating oil wastes is not derived
from lubricant base material but derives from additives added, metal, contaminants from
petrol fuel containing lead, dust, dirt from the air, refrigerant and cooling water used to
cool the machine. The process of lubricating oil wastes aims to make waste oil used to be
a new oil that does not contain metal because the metal content in used oil is not useful.

This document was undertaken to show the Lubricating Oil and Grease Production
Investment profile in Girari Districty, Kura Jida Sub-City, Sheger City, ONRS. In
compiling the report, information from Ethiopian Investment Commission (EIC), trade
and industry development, Ethiopian Revenue and Customs Authority (ERCA), and
published sources have been augmented.

The Production of Lubricating Oil and Grease in Ethiopia is minimal compared to its raw
materials availability (huge used oil) in the country related to manufacturing industry and
automobiles industry. One of the main causes of this disparity is absence of potential
investor involved in the area.

Lubricating Oil and Grease Production is an industry of prime importance to developing

countries like Ethiopia as the economy of Ethiopia is the hub of manufacturing industry.
In Ethiopia, the demand for Lubricating Oil and Grease product is expected to increase
considerably in the next few decades as a result of increased population growth,
manufacturing industries, automobiles, and increasing income levels.

1. 2. THE CITY BENEFIT FROM THE INVESTMENT

The city will be benefited from investment. These are discussed below.
 Employment opportunity
Investment is expected to provide direct and indirect employment. These range from
unskilled causal workers, semi-skilled and skilled employees.

 Improving growth of the economy

Through the use of locally available materials and exporting products, the investment
contributes towards growth of the economy by contributing to the growth of domestic
2
product. These eventually attract taxes including VAT which will be payable to the
government hence increasing government revenue while the cost of local materials will
payable directly to the producers. In addition, domestic products save foreign exchange
and exports also bring money to the country.

1. 3. OBJECTIVES OF THE STUDY

The main objective of the study is to conduct a feasibility study to determine the viability
of the company that constitute assessment of the market study, production capacity
selection, raw materials and input analysis, technology selection, organizational structure
and human resource, project implementation, financial (cost-benefit) analysis and to
prepare an investment plan acceptable by various shareholders such as the owners,
financial institutions, equity investors, international organizations etc.

The objective of the industry is in line with the national manufacturing and automobile
policies and strategies. The Ethiopian government has introduced multi-sectoral business
policies and strategies as part of its commitment to promote business, and achieve the
country‟s development goals.

1. 4. METHODOLOGY AND APPROACH

In general, to attain the above stated objectives, the study has developed the suitable
methodology which utilizes both quantitative and qualitative data / information from
both primary and secondary sources. Accordingly, the methodology and approach used
to conduct the feasibility study is discussed hereafter.

1. 4. 1. Preliminary Assessment and Study Design

This stage has involved preparatory works necessary for undertaking the study. The
major focus at this stage includes identification of overall information requirement,
collection and review of related documents and literature and designing suitable data
collection instruments i. e. international data, national data, etc.

3
1. 5. PRACTICAL DATA REVIEW OF LUBRICATING OIL
AND GREASE
The challenges and prospects of the recycling of used oil in general and the lubricating
oil and grease manufacturing in particular all around the world have been accessed.
Recycling keeps oil out of our groundwater supplies, thus protecting drinking water
resources. Used motor oil can be reprocessed into fuel that can be used in furnaces for
heat, or in power plants to generate electricity for homes, schools and businesses.

The collection and recycling of used motor oil from our cars, trucks, motorcycles, boats,
RVs, or lawnmowers is the best way to protect the environment from this hazard and
conserve energy resources. A used lubricant is not ecologically safe, but by its technical
and physical properties corresponds to the requirements of beneficial reuse.

Used motor oil can also be re-refined into lubricating oils that meet the same API
specifications as virgin motor oil (American Petroleum Institute, www. recycleoil. org;
Pawlak, 2003). The recycling (reprocessing, re-refining) allows recovery of mineral base
oil, which is a valuable part in the production of lubricating oil used as a clean fuel and
to create many petroleum-based products. One gallon (3. 8 kg) of used oil can be re-
refined into 2. 3 kg of lubricating oil. For comparison, a 42-gallon (150 kg) barrel of
crude oil typically contains only 1/2 gallon (1. 9 kg) of lubricant-quality base oil (Lin
and Mendelssohn, 1998).

The prospect of the sector is wider for the developing and emerging economies due to
exponential growth of the population and the new consumption habits that has been
raised by the extensive industrialization for profitability and sustains life. The challenges
are also different both in the western developed world and the developing and
underdeveloped countries. Basically, the ageing workforce and dependence of import for
most Europeans, demographic structure for some northern hemisphere nations are the
major challenges of the chemical industry, particularly the Lubricating Oil and Grease

4
market. In developing countries, poor administration and government concern, lack of
skilled man power and innovation are the biggest threats of the Lubricating Oil and
Grease industry sector in general, the Lubricating Oil and Grease sector in particular.

5
 2. PRODUCT DESCRIPTION AND
APPLICATION
2. 1. Products Description of the Industry
2. 1. 1. Lubricating Motor Oils, Hydraulic and Brake Fluids
Lubricating oil is a thick fatty oil used to make the parts of a machine move smoothly.
Lubricating oil creates a separating film between surfaces of adjacent moving parts to
minimize direct contact between them, decreasing heat caused by friction and reducing
wear. A lubricant is a substance that helps to reduce friction between surfaces in mutual
contact, which ultimately reduces the heat generated when the surfaces move. It may also
have the function of transmitting forces, transporting foreign particles, or heating or
cooling the surfaces. The property of reducing friction is known as lubricity.

In addition to industrial applications, lubricants are used for many other purposes. Other
uses include cooking, to reduce rusting and friction in machinery, through the use of
Motor oil and grease, bio-applications on humans, ultrasound examination, medical
examination, and sexual intercourse. It is mainly used to reduce friction and to contribute
to a better, more efficient functioning of a mechanism.

Lubricating oil prevents the metal surface from any type of corrosion and roughness. It
adds life to the machines and increases performance. It is extremely important to keep
the machines, engines, tools or other types of metal surfaces properly lubricated for
better efficiency and life. The content of thickeners in lubricating oil is about 10%-20%,
the content of base oils (most often petroleum fractions, called mineral oils) is about
75%-90%, and the content of additives is less than 5%. Vegetable oils or synthetic
liquids such as hydrogenated polyolefins, esters, silicones, fluorocarbons and many
others are sometimes used as base oils.

6
2. 1. 2. Grease
Grease is a solid or semisolid lubricant formed as a dispersion of thickening agents in a
liquid lubricant. Grease generally consists of a soap emulsified with mineral or vegetable
oil.

A common feature of greases is that they possess high initial viscosities, which upon the
application of shear, drop to give the effect of an oil-lubricated bearing of approximately
the same viscosity as the base oil used in the grease.

Greases are applied to mechanisms that can be lubricated only infrequently and where
lubricating oil would not stay in position. They also act as sealants to prevent the ingress of
water and incompressible materials. Grease-lubricated bearings have greater frictional
characteristics because of their high viscosities.

Lubricant - just like grease- is used to lubricate systems or tools. The difference, however,
is that grease is a (semi) solid substance that becomes liquid when it starts 'moving' while
lubricant is already liquid. The oil penetrating the stuck parts to loosen. Grease and
lubricating oil are not the same. Grease is used when it is not practical or convenient to use
oil. Grease is a semi-solid lubricant that is made up of 70-95% base oil, 3-30% thickener
and 0-10% additives.

2. 3. Recycle Lubricating Oil and Grease

Mineral oils whether from crude oil or manufactured as synthetic oils, are used for a wide
variety of purposes ranging from lubrication, heat, and power transfer, metal cutting etc.
depending upon the application and operating environment, the oil get contaminated and/or
degraded. Thus, needs to be discarded as causing waste oil (used oil) generation. This
waste oils are classified as hazardous waste.

The industry can process waste machining oil, engine oil, lubricating oil, hydraulic oil,
gear oil, mixed oil, waste motor oil, all kinds of waste engine oil and other mineral
7
lubricating oil to lubricating oil and grease.

2. 2. Benefits of Recycling Used Oil

Recycling and reusing used motor oil is preferable to disposal and can provide great
environmental benefits. Recycled used motor oil can be re-refined into new oil,
processed into fuel oils, and used as raw materials for the petroleum industry.

Used oils such as engine lubrication oil, hydraulic fluids, and gear oils used in cars,
bikes, or lawnmowers can pollute the environment if they are not recycled or disposed of
properly. Used oil must be managed properly by local waste management authorities or
automotive repair shops to prevent contaminating the environment. Used oil filters pose
similar waste concerns. If properly drained, they can be safely recycled or disposed.

According to the U. S. Department of Energy (DOE) detailed many environmental and

economic benefits, some of the many reasons to reuse and recycle used oil include:
 Recycling used oil keeps it from polluting soil and water.
 Advances sustainability by extending the life of U. S. crude oil resources.
 Conserves energy, “as it can take less energy to recycle used oil than to create new
lubricating oil from virgin crude oil. ”
 Helps provide consumers with a range of economical product choices.

Lubricant manufacturers are interested in sustainability, efficiency, and marketability, and

not just due to the ideological appeal of conservation.

8
 3. MARKET STUDY AND PLANT CAPACITY
3. 1. MARKET STUDY
The global lubricant (lubricating oil and grease) market size was USD 145. 83 billion in
2023, accounted for USD 151. 66 billion in 2024, and is expected to reach around USD
224. 50 billion by 2034, expanding at a CAGR of 4% from 2024 to 2034. Europe held a
substantial revenue share in the lubricants market and is expected to experience a
significant compound annual growth rate (CAGR) in the forecast period. The European
Union (EU) automotive industry is one of the largest globally, playing a vital role in the
region's economy. During the first three quarters of 2023, the EU produced over 9
million cars, marking a 14% increase compared to the previous year. As seen in Figure 3.
1, the market size of the lubricants will increase smoothly for the next years.

FIGURE 3. 1 : LUBRICANTS MARKET SIZE FROM 2023 TO 2034

9
Ethiopia imports of Lubricating Oil and Grease as both products manufacture in Oil
Producing nations. Petroleum-derived lubricating oil is a mixture produced by
atmospheric and vacuum distillation of selected paraffinic and naphthenic crude oils,
after which chemical changes may be required to produce the desired properties of the
refined product.

As all local and international data shows that, the project will have unsatisfied demand
for the coming decades. The present (2024) demand for Lubricating Oil and Grease is
huge for instance Ethiopia has imports huge amount of Lubricating Oil and Grease The
demand for Lubricating Oil and Grease is high as seen from local and international
studies. The projected demand will continue to be positive in the next decades. It can be
clearly noted that there is a huge gap between supply and demand figures, which can
really be taken as the apparent demand-supply gap for Lubricating Oil and Grease in
Ethiopia. This is really the actual unsatisfied demand as imports have to be substituted
that also helps in saving the foreign currency outflow from the country. The unsatisfied
demands for Lubricating Oil and Grease for the next years are huge.

3. 1. 3. Pricing and Distribution

By considering the average imported price of Lubricating Oil and Grease and adding
costs of duty and other import related expenses, a factory gate price of Lubricating Oil
and Grease has decided. The cost of Lubricating Oil and Grease in Ethiopia and global
level has registered, the ongoing tension, challenges within the supply chain and rising
costs of raw materials contribute to increasing lubricant prices in 2023. Advanced
Lubrication Specialties (ALS) announced a price increase of up to 12% on all products
that are lubricant oil and grease (See Figure 3. 2).

10
FIGURE 3. 2: INCREMENT OF LUBRICANT PRICE IN THE WORLD

The product can be classified as a high consumer item. The end users of the product are
numerous industrials and automobiles sectors in day to day activities and widely

11
distributed throughout the country. Therefore, the factory has to appoint a number of
distributors in different locations of the country. The distributors will sell the products to
the retailers to reach the final consumers of the product.

3. 1. 3. 1. Target Market and Marketing Mix

The diversity of products to perform basic Lubricating Oil and Grease producers renew
their product lines by introducing new modern technology, or new formulations to
enhance plant growing performance. Several trends influence the development of
consumer Lubricating Oil and Grease products.

The industry has been targeting both the local market and foreign market. As the demand
of the product national level, the main local destinations of the Company's products are
mainly Sheger, Addis Ababa, Adama, Hawasa, Dessie, and Bahir Dar.

Marketing is an essential role of every business organization and marketing activities

must be performed, to some extent, for the survival of every business organization.
Although many factors affect an organization's marketing strategy, all marketing
decision-making can be classified into four strategy elements, sometimes referred to as
the marketing mix or the four P's: Product, Price, Place (distribution) and Promotion.
While these four factors are important individually, their real significance lies in the mix,
the unique way they are combined into a careful plan or strategy. The combination of
these four factors determines the success of marketing activities of a Company.

3. 1. 3. 1. 1. Product Quality
Product quality is the basic and most important marketing mixes that affect the success
of a product. Product quality has two dimensions, i. e. , level and consistency. Level
means the producer must first choose a quality level that will be acceptable in the target
market and in a level that comply with the quality of competing products. Consistency
refers to the consistent delivering of one's established quality through strict quality
control measures.

12
A consumer's view on the quality of a certain brand of Lubricating Oil and Grease is
influenced by a number of factors including the chemical and physical attributes of the
Lubricating Oil and Grease, its package type, the brand and the labeling.

The chemical and physical attributes of the Lubricating Oil and Grease are reflected in
the growth of plants, which on the other hand depends on many factors, is in the end the
decisive link in the chain of evaluations made by the consumer. Accordingly, in order to
get an insight about consumer's perception on the quality of products, a rapid market
survey was undertaken. During the survey, a sample of consumers was asked to express
their views on the quality of the products of many Lubricating Oil and Grease. The
parameters employed as a proxy to the measure the quality of the Lubricating Oil and
Grease products are starts from its production process. In organic wastes fermentation,
there are 5 factors affecting the final quality of the organic compost, which will directly
influence the final quality of the Lubricating Oil and Grease. They are Water,
Temperature, C/N ration, Ventilation and oxygen supplying, and pH, which are
environmental factors.

3. 1. 3. 1. 1. 1. Packaging and Labeling

Another important issue in the marketing is packaging and labeling. Care must be given
to the packaging of product, if one intends to enter the market. It is obvious that the
packaging must be travel steady. As required, products should also be protected against
the elements, changes of temperature, rough handling and theft. Besides these basics of
travel and handling durability, some importers may have specific demands concerning
packaging which the supplier should carefully study and adhere to. Lubricating Oil and
Grease of all nature are packed in plastic in all forms and dimensions, an assortment
from diminutive flasks which holds ounces to demijohns and carboy's which can store
many kilos. However, most of the well-known local and international brands are packed
in 1-208 liters of plastic bottles.

Rigid packaging is defined as injection-molded plastic containers, ranging in size from 1

pint to 7 gallons. The containers can be round, square or rectangular and are typically made

13
of 90-millimeter thick high-density polyethylene (HDPE) or polypropylene. HDPE is more
widely used and is more often the lower priced option compared to polypropylene.

For the local market, the recommended size is 5 Li of plastic containers whereas the
international market needs larger size of packaging 1-10 Li of plastic containers. The
project is also recommended to adopt the same type of packing.

The Lubricating Oil and Grease products are packaged with carton and plaster until it
reaches to retailers shops. Labeling is also an important issue in the market. Different
countries have different labeling requirement. However, the most common labeling
requirements are: Brand name:
 Accurate description of the Lubricating Oil and Grease,
 Class and type designation: specific identity of the Lubricating Oil and Grease,
 Name of producer and country of origin,
 Net contents, and
 Health warning statement to be clear about the content of heavy metals.

3. 1. 3. 1. 2. Distribution
Distribution refers to the distribution of the product to the consumers by the producer
while channel of distribution is the network of middlemen through whom the products
flows till it finally reaches to the hands of the actual users or consumers. It becomes
difficult for a producer to adequately follow market trends and serve target markets if a
proper distribution channel and organizational set up are not in place. Some markets are
excessively supplied, while others experience frequent shortages. These incidences can
occur even if a manufacturer employs a proper media to channel its products to all
market segments. Intermediaries often and deliberately introduce artificial shortages in
some brands to boost the marketability of a weaker brand.

Channel of distribution varies in its form and length from consumer goods to industrial
goods and within one class of goods; it varies from product to product. For a consumer
market a retailer is essential, whereas in the industrial market the retailer can be

14
eliminated. For a perishable commodity, the producer prefers few and controlled levels
of distribution, while for durable and standardized goods a longer and diversified
channel may be necessary. Size and average frequency of customer's orders also
influence the channel decision.

Existing local producers of Lubricating Oil and Grease employs three types of
distribution arrangements. In Sheger city and its environs; the factories distribute the
products to retailers directly using their own vehicles and directly sell to retailers
(factories, garage etc) from factory premises. In other routes, they distribute through
agents.

Direct sale offers the greatest degree of control, but can be uneconomical where there are
a large number of customers for the product in question.

Distribution through an intermediary offers the manufacturer the opportunity to

improve his overall profitability, although at the sacrifice of some measure of control.

Distribution through wholesaler / agent has the advantage of reaching a majority of the
small retail outlets and few salespersons are needed by the manufacturer.

In view of the high costs associated with direct sales to the consumer, the proposed
channel of distribution is as given below.

For efficient and reliable distribution the project will open four distribution centers that
can cover most of the regions of the country. The four distribution centers are: -
 Sheger - Cater Central markets (Sheger and its environs);
 Jimma town - Caters South Western markets (Jimma, Illubabor and Gambella);
 Mekele - caters all market segments in Tigray Region North Wolo and Gondar area
 Adama - caters Eastern and South Eastern markets (SNNP Regions, Bale, Borena,
Dire Dawa city, Harari Region, and Somali Region).

15
Regarding the export market, the envisaged project requires companies / distributer
in the destination markets for export items that described in TABLE 3. 1.

TABLE 3. 1 : DISTRIBUTION OF THE LUBRICATING OIL AND GREASE

PRODUCTS

SR. NO. ITEM DESCRIPTION LOCAL MARKET FOREIGN MARKET

Capacity Utilization (%) 50% 50%
1 Lubricating Oil (Ton) 1,000. 00 1,000. 00
2 Grease (Ton) 800. 00 800. 00

3. 1. 3. 1. 3. Pricing
Pricing a product is an important and critical activity since it is the major
factor in determining revenue. If a lower price is fixed, it will affect the profitability of
the company, and if a higher price is fixed, the product will not be able to stand in market
competition and may be forced out of the market. Therefore, the right price has to be
fixed.

In general, price setting is done by selecting one of the two frequently used pricing
approaches. The simplest method is cost-based approach (Cost-plus pricing), which
involves adding a standard mark-up to the cost of the product, and competition based
approach (going- rate pricing), which bases its price largely on competitors' prices.

At present, there are a number of local Lubricating Oil and Grease producers, which
means the project, has to work within a competitive environment. In a competitive
market, a straight cost plus pricing is not desirable as it is not sensitive to demand and
competitors' price. Furthermore, the Ethiopian market is, by-and-large, price conscious
and consumption demand is very much sensitive to price. Therefore, competition based
or going rate pricing is unavoidable as charging for a product more than the going rate
would not attract consumers and would eventually force the products out of the market.
Consequently, the envisaged project has to adopt a going rate pricing strategy.

16
The current factory gate price of locally produced Lubricating Oil and Grease ranges
from ETB 130. 00 to 140. 00 per kg, while the wholesales / distributors price of imported
Lubricating Oil and Grease ranges from ETB 170. 00 to 190. 00 per kg depending on the
country of origin and brand, usually Lubricating Oil and Grease imported from India,
China etc. being on the lower side of the prevailing price and Lubricating Oil and Grease
imported from European countries being on the higher side of the prevailing price. In
general the price difference between locally produced and imported Lubricating Oil and
Grease and also among imported Lubricating Oil and Grease is due to the perceived
quality of the products and brand value.

As mentioned earlier, the envisaged project has already started to manufacture

lubricating oil and grease from used oil in its compound. The industry will expand the
project and will produce Lubricating Oil and Grease from those used oil using advanced
technology and employing an expatriate technologist with wide experience in the
production of both products. Hence, the prices to be fixed have to be similar to the
current locally produced Lubricating Oil and Grease. Nevertheless, since brand
development requires time and resources the envisaged plant, at least initially, has to set
a price lower than the imported Lubricating Oil and Grease.

Accordingly, after considering the above factors, the recommended factory gate prices
for the company in the local market are ETB 110,000. 00 and 90,000. 00 per ton of this
Lubricating Oil and Grease respectively.

With regard to export, price is one of the major instruments to enter into and establish in
a foreign market. In Ethiopia, products and services destined for export are exempted
from particular types of taxes levied on domestic sale. This will increases the
competitiveness of the envisaged project's products in the export market.

3. 1. 3. 1. 4. Promotion
One of the strategic objectives of a business is to implement effective marketing

17
strategies to achieve its mission and specific objectives formulated in its business plan.
The business plan will propose several marketing tools for implementation. One of the
tools aims at promoting the products or the services of the business. The objective is to
communicate and make customers excited about the product or service of the business.
There are different types of tools to get the message of the business to its customers or
potential customers. Depending upon the product or service, customer life style, and cost
constraints, different techniques could be optimal.

In this connection, the survey has revealed that the promotional activities carried out by
company are minimal and inadequate.

Market promotion is an important part of the marketing mix, as it is required to create

and increase consumer awareness, knowledge and readiness to buy through media
communications (advertising) and through special offers to trade and / or consumers
(sales promotion). However, it is important to realize that, on its own; market promotion
will not replace selling, change long-term trends, or build long-term customer loyalty. It
has to be supported by quality and distribution efficiency.

The Lubricating Oil and Grease is allowed advertising in mass media such as TV and
Radio due to its low production per year. However, the mass media cost is high. As a
result, the following are the type of advertisements and promotional efforts made by the
factory.
 Calendars, Pamphlets; and
 Poster advertisement.

Initially, the objective of advertisement should concentrate in attracting attention for the
product. Once product acceptance has been achieved, advertisement usually concentrates
on building brand image and loyalty.

In calendar advertisement the project should focus not only on its attractiveness but also
on its fair distribution and wide coverage. Participation in exhibitions is also very

18
important for advertising the products.

3. 1. 3. 1. 4. 1. Development of Marketing Capability

The envisaged project should establish a strong marketing department that carries out
market monitoring. The project thus needs to establish a Marketing Information System
(MIS) to ensure the flow of pertinent marketing information to decision makers at all
levels. Moreover, it is important that the company consider the development of staffs that
are able to sell and develop a local business for the products. This can be done by
recruiting and training qualified and experienced staff.

Human resource development of top and medium management level is also necessary to
optimize the export marketing activity of the company. Therefore, training in the
following areas is desirable.
 Product development, product improvement, efficiency and / or effective measures in
production and communication with buyers regarding all technical aspects, including
quality control aspects;
 Know-how (including cost aspects) about required customer formalities,
 Shipping (including land transport) facilities and packaging to guarantee delivery with
contractual time requirements;
 Financial capabilities including contract parts like delivery and payment procedures;
 Export market orientation and export marketing know-how; and
 Communication tools.

3. 2. PLANT CAPACITY AND PRODUCTION PROGRAM

3. 2. 1. Plant Capacity
The market study shows that demand for Lubricating Oil and Grease increases from time
to time. Based on the market study and period required to implement the project and
market penetration and technical skill development, the envisaged plant capacity is
1,000. 00 tons and 800. 00 tons of Lubricating Oil and Grease per annum. The working
time of the industry has been on a single shift of 8 hours per day and 300 working days
per year.
19
3. 2. 2. Production Program
In order to develop the operators' skill in production and quality control, it is vital to
have a gradual capacity build-up. In addition to this, a period is required to penetrate to
the market. Hence, it is assumed that the plant will go into full capacity operation in four
years' time starting with 70% capacity in the first year and progressively developing to
100% in the fourth year respectively. The production program of the envisaged plant is
given in TABLE 3. 2.

TABLE 3. 2 : PRODUCTION PROGRAMME OF THE ENVISAGED LUBRICATING

OIL AND GREASE MANUFACTURING PLANT

st nd rd th
SR. ITEM DESCRIPTION 1 YEAR 2 YEAR 3 YEAR 4th-10
NO. YEAR
Capacity Utilization (%) 70. 00 80. 00 90. 00 100. 00
1 Production Of Lubricating
700. 00 800. 00 900. 00 1,000. 00
Oil (Ton)
2 Production Of Grease (Ton) 560. 00 640. 00 720. 00 800. 00

20
 4. MATERIALS AND INPTUS
4. 1. RAW MATERIALS
The principal raw materials required that might be used as possible inputs to produce
Lubricating Oil and Grease are used oil from vehicles and machineries, calcium,
bleaching earth, animal fat and adhesives.

4. 1. 1. Design of the Inputs of Lubricating Oil Production

There are three types of base oils that used for lubricating oil production: mineral,
vegetable, and synthetic. Mineral oil comes from crude oil and the quality depends on the
refining process. On the other hand, only 3. 8 kg of used oil is sufficient to manufacture 2.
3 kg of lubricating oil. This makes recycling of used oil a fairly viable process for base oil
manufacturing. The content of thickeners in lubricating greases is about 10%-20%, the
content of base oils is about 75%-90%, and the content of additives is less than 5%. This
industry has designed to use 90% base oil, 6% thickeners, 4% additives in production of
recycle lubricating oil.

4. 1. 2. Design of the Inputs of Lubricating Oil Production

The used oil is sufficient to manufacture one gallon of base oil and proceed to grease
lubricant. This makes recycling of used oil a fairly viable process for base oil
manufacturing as stated above. Grease is a semi-solid lubricant that is made up of 70-95%
base oil, 3-30% thickener and 0-10% additives. In this industry, the product designed to
have 80% base oil, 10% thickener and 10% additives in its production process.

Calcium is typically related to the detergent additive packages commonly used in engine
oils. Detergents are used in lubricants to aid in control of deposits and help keep
contaminants suspended in the oil so they can be carried to the filter and removed.

21
The total annual cost of raw material at full capacity operation is estimated at ETB 52. 70
million. Annual requirement of raw and auxiliary materials at full capacity production of
Lubricating Oil and Grease is shown in TABLE 4. 1.

All raw materials have to be locally available from importers and local producers. Packing
material is the only auxiliary material required by the envisaged plant.

TABLE 4. 1 : ANNUAL REQUIREMENT FOR RAW AND AUXILIARY MATEIRALS

AND THEIR COST

SR. ITEM UNIT QUANTIT UNIT COST („000 ETB)

NO. DESCRIPTION Y COST LC FC TC
(ETB)
LUBRICATING
OIL PRODUCTION
1. RAW
MATERIALS
1. 1 Used Oil Form 12,380.
Ton 1,668. 86 7,418. 60
Vehicle 62 12,380. 62
1. 2 224,000. 11,313.
Calcium Ton 50. 51
00 13 11,313. 13
1. 3 Bleaching Earth Ton 5. 05 23,240. 00 117. 37 117. 37
1. 4 Animal Fat Ton 5. 05 1,960. 00 9. 90 9. 90
1. 5 Additives Ton 40. 40 13,104. 00 529. 45 529. 45
2 GREASE
- 35,000. 00
PRODUCTION 0. 00 0. 00
Used Oil Form 7,923.
Ton 1,068. 07 7,418. 60
2. 1 Vehicle 60 7,923. 60
224,000. 14,480.
Calcium Ton 64. 65
2. 2 00 81 14,480. 81

22
 2. 3 Bleaching Earth Ton 8. 08 23,240. 00 187. 80 187. 80
2. 4 Animal Fat Ton 8. 08 1,960. 00 15. 84 15. 84
1,058.
Additives Ton 80. 81 13,104. 00
2. 5 91 1,058. 91
2 AUXILIARY
MATERIALS FOR
LUBRICATING
OIL AND
GREASE
2. 1 Number,
5 Li
1,171,717.
Packing Material Plastic 4. 00
17
Contain 4,686.
er 87 4,686. 87
Grand Total Cost 52,704. 30

In order to maintain continuous production of Lubricating Oil and Grease, it would be

appropriate to devise raw material collection and supply program based on its similar
production ratio. For this collection and supply, points will have to establish both in garage
and manufacturing industries sites. For collecting and supply of used oil, associations and
cooperatives can be utilized.

4. 2. UTILITIES
Electricity is the main utilities required by Lubricating Oil and Grease plant in large
amount to get quality products. The other utilities are fuel as transportation energy to
distributer the products and facilitate the marketing. The total annual cost of utilities is
estimated at ETB 4. 75 million. The annual quantities and cost of utilities are estimated as
shown in TABLE 4. 2.

23
TABLE 4. 2 : ANNUAL UTILITY REQUIREMENT AND COST

SR. DESCRIPTION UNIT QUANTITY COST PER TOTAL COST

NO. UNIT (ETB) (000 ETB)
1 Electricity KWH 740,000. 00 3. 40 2,516. 00
2 Cubic
Water 12,250. 00 10. 00 122. 50
Meter
3 Fuel Li 24,000. 00 79. 00 1,896. 00
4 Lubricant Kg 12. 00 150. 00 1. 80
5 Internet DB 1,400. 00 150. 00 210. 00
TOTAL COST 4,746. 30

24
 5. TECHNOLOGY AND ENGINEERING
5. 1. TECHNOLOGY
5. 1. 1. Production Process of Lubricating Oil and Grease
The production of Lubricating Oil and Grease include: production of base oil from used
oil and blending unit.
1. Base Oil Production Process
Waste Oil to Base Oil Plant consists of the following systems;
1. Dehydration & Sedimentation System;
2. LGO Stripping System;
3. Fractionating & Reflux System; Thin Film Evaporation System; Short Path
Distillation System;
4. Heaters & Heat Exchangers;
5. Base Oil Poshing System;
6. PLC/Scada Control System;
There are three major heating methods which are commonly used in waste oil refineries.
Electrical heating, Boiler and Furnace. Electrical heater is more often to be used in small
scale of waste oil refineries. The advantage of electrical heater is that it does have a wide
range of heating temperature and it is an economic solution for using in small scale
refineries.

On another hand, Hot oil boiler can be used in either of medium to large scale of waste
oil refineries. Heating by boiled in heat exchangers are a very common way of heating in
petrochemical industry. It is safe, efficient and controllable. However, most of hot oil
boilers have a limit of heating temperature which is below 380-350℃.

The furnaces are usually used in large scale of waste oil refineries. It also has a wide
range of heating temperature and there‟s no requirement for thermal oil consumption
comparing with hot oil boiler. However the furnace is usually in 18-20 meters tall.

25
2. Lube Oil and Grease Blending Process
Lube Oil and Grease Blending Plant is consisted of the following Systems,
1. Automatic Dosing System;
2. Heating System;
3. Automatic Blending System;
4. Tanks & Pumps;
5. Pipings & Skid Mounted Frame;
6. PLC Control System;

A complete PLC based control system is also equipped for monitoring and controlling the
dosing, blending, heating, flowrate and other parameters of whole system.

The quality of lubricant oil and grease relies heavily on both the quality of the base oil and
the additives used. Additives can significantly enhance the performance of the products,
allowing it to meet the specific requirements of various industrial applications. Blending is
the final crucial step in the lubricant oil and grease production process. This involves
mixing different viscosity lubricant. Appropriate additives are introduced to the mixture to
achieve the desired performance characteristics. The selection of lube oil and grease
blending components and additives is tailored to the intended application.

Block diagram of treatment of lubricating oil waste to new lubricating oil and grease can
be seen in FIGURE 5. 1.

26
FIGURE 5. 1 : LUBRICATING OIL AND GREASE PRODUCTION PROCESS FLOW
SHEET FROM USED OIL

5. 1. 2. Source of Technology

The technology required can be obtained from European and Asian countries such as
Germany, China, India, and South Korea.

The machinery and equipment required can be obtained from the following address.
1. Pure Path Tech Company
Email: sales@purepathtech. com
WhatsApp: +86 15213363289
Mobile: +86 15213363289
Facebook: Purepathtech
Youtube: wasteoildistillationplant

27
Linkedin: PPGT
Address: Luohuang Industrial Park, Jiangjin District, Chongqing, China

2. Chongqing Yangjiang Machine Manufacture Co. , LTD

WhatsApp: +86 133 9980 7550

5. 2. ENGINEERING
5. 2. 1. Machinery and Equipment
Most of the required machinery and equipment for the production of Lubricating Oil and
Grease production plant are imported. The total cost of machinery and equipment is
estimated to be ETB 41. 91 million. All the machineries are imported from abroad in
foreign currency. The list of machinery and equipment required for the envisaged plant is
given in TABLE 5. 1.

TABLE 5. 1: LIST OF MACHINERY AND EQUIPMENT FOR LUBRICATING OIL

AND GREASE

SR. NO. DESCRIPTION QUANTITY

A BASE OIL PRODUCTION SYSTEM
1 Dehydration & Sedimentation Tank 1
2 Fractionating & Reflux System; Thin Film Evaporation 1
System; Short Path Distillation
3 Heaters & Heat Exchangers; 1
B GREASE AND LUBRICATING OIL BLENDING SYSTEM
1 Automatic Blending System; 1
2 Tanks & Pumps; 1
C Auxiliary apparatus and auxiliaries
D Packaging system for Grease and Lubricating Oil 1

28
5. 2. 2. Building and Civil Works
Lubricating Oil and Grease processing plant requires land for open storage of raw
materials, a shed for storage of finished product, land for processing plant, for office
building and general purpose buildings. It is proposed that a total land area of 46,904. 50
square meters of land. The total construction cost of the project has described in below
only for the construction of the project within the compound of the factory. The total
building and other premises costs has described below in detail at Table 5. 2.

TABLE 5. 2: TOTAL LAND ALLOCATION AND ITS COSTS

AREA
UNIT TOTAL
SR. (IN
DESCRIPTION QTY. COST COST (000
NO. M²)
(ETB) ETB)
UNIT
Land Clearing And
1 M² 30,000. 00 50. 00
Leveling 1,500. 00

2 Fence And Gates M² 240. 00 12,000. 00

2,880. 00

3 Main Production Building M² 2,000. 00 12,000. 00

24,000. 00

4 Office Building M² 500. 00 12,000. 00

6,000. 00

5 Guest House M2 50. 00 12,000. 00

600. 00

6 Canteen M² 100. 00 12,000. 00

1,200. 00

7 Laboratory M² 100. 00 12,000. 00

1,200. 00
Utility Room (Power
8 Distribution, Boiler, M² 30. 00 12,000. 00
Compressor, Generator) 360. 00

29
 Maintenance Workshop
9 M² 500. 00
And Garage -

10 Finished Product Store M² 1,000. 00 12,000. 00

12,000. 00

11 Raw Material Store M² 1,000. 00 12,000. 00

12,000. 00

12 Workers Changing Rooms M² 100. 00 12,000. 00

1,200. 00

13 Guard Houses M² 100. 00 12,000. 00

1,200. 00

IVTW1 M² 4,000. 00

Car Parking M² 2,700. 00

-

Internal Road M²
-

Waste Management M² 4,000. 00

-

Green Area M² 7,900. 00

-

M² -
Total Area -

Total
64,140. 00

Grand Total 46,904. 50 - 64,140. 00

5. 3. Environmental and Social Impact Assessment, ESIA

Lubricating Oil and Grease uses the wastes that are found within the garage and industry
machineries. Recycling used oil keeps it from polluting soil and water. Motor oil does
not wear out-it just gets dirty-so recycling it saves a valuable resource. Less energy is
required to produce a gallon of re-refined base stock than a base stock from crude oil. By
recycling, we can conserve natural resources, reduce pollution, save energy, and create
1
Wastewater treatment technology to treat toilet and oily wastewater. This technology is
recommended due to its treatment efficiency and ecological capability.

30
jobs. It is important for individuals and communities to get involved in recycling and to
support policies and programs that promote sustainable waste management practices.

Waste oil is a valuable commodity. It contributes to the improvement of the environment,

resulting in healthier food and hence improved health for humans. More recycling
businesses mean more jobs and more research into the use of waste oil. These and other
advantages demonstrate why we should all consider recycling waste oil. The production
and application of the Lubricating Oil and Grease have no environmental impact.

31
 6. HUMAN RESOURCE AND TRAINING
REQUIREMENT
6. 1. HUMAN RESOURCE REQUIREMENT
Total human resource required is 142 persons in permanent basis and other temporary
staffs. The total annual cost human resource is estimated at ETB 48. 03 million. The
details of the human resource requirement and the estimated annual labor cost including
employees' benefit are given in TABLE 6. 1.

TABLE 6. 1: HUMAN RESOURCE REQUIREMENT AND ESTIMATED LABOR

COST (ETB)

MONTHLY ANNUAL
SR.
POSITION NO. SALARY SALARY (IN
NO.
(ETB) 000 ETB)
1 Overhead Labor
1. 1 General Manager Office

1. 1. 1 General Manager 1 70,000. 00 840. 00

1. 1. 2 Executive Secretary 1 30,000. 00 360. 00

Sub Total 2 - 1,200. 00

Finance And Administration
1. 2 -
Department
1. 2. 1 Department Head 1 40,000. 00 480. 00

1. 2. 2 Senior Accountant 3 35,000. 00 1,260. 00

1. 2. 3 Junior Accountant 3 15,000. 00 540. 00

1. 2. 4 Senior Cost Accountant 2 35,000. 00 840. 00

32
1. 2. 5 Cost Accountant 3 25,000. 00 900. 00

1. 2. 6 Personnel 4 17,000. 00 816. 00

1. 2. 7 General Service 6 12,000. 00 864. 00

1. 2. 8 Driver 5 25,000. 00 1,500. 00

1. 2. 9 Security Head 1 15,000. 00 180. 00

1. 2. 10 Guard 6 10,000. 00 720. 00

1. 2. 11 Janitors 11 10,000. 00 1,320. 00

1. 2. 12 Gardner 5 10,000. 00 600. 00

Sub Total 50 - 10,020. 00

Management Information
1. 3 -
System Service

1. 3. 1 Service Head 1 40,000. 00 480. 00

1. 3. 2 It Expert 2 25,000. 00 600. 00

Sub Total 3 1,080. 00

1. 4 Commercial Department -

1. 4. 1 Department Head 1 40,000. 00 480. 00

1. 4. 2 Purchaser 3 25,000. 00 900. 00

1. 4. 3 Salesperson 4 25,000. 00 1,200. 00

1. 4. 4 Storekeeper 2 18,000. 00 432. 00

1. 4. 5 Assistant Store Keeper 3 15,000. 00 540. 00

Sub Total 13 - 3,552. 00

Total 68 - 15,852. 00
Employee‟s Benefit And
- 3,170. 40
Expense (20% Of Basic Salary)
Total Overhead Labour 68 - 19,022. 40

33
 2 Direct Labour -
Production And Technical
2. 1 -
Department

2. 1. 1 Department Head 1 40,000. 00 480. 00

2. 1. 2 Production Supervisors 1 30,000. 00 360. 00

2. 1. 3 Operators 12 15,000. 00 2,160. 00

2. 1. 4 Assistant Operators 11 14,000. 00 1,848. 00

2. 1. 5 Laborers 21 10,000. 00 2,520. 00

2. 1. 6 Senior Mechanic 4 21,000. 00 1,008. 00

2. 1. 7 Junior Mechanic 6 15,000. 00 1,080. 00

Senior Electrician 4 15,000. 00 720. 00

2. 1. 8 Junior Electrician 6 15,000. 00 1,080. 00

Sub Total 66 - 11,256. 00
Quality Control And Assurance
2. 2 -
Service
2. 2. 1 Service Head 1 40,000. 00 480. 00
2. 2. 2 Quality Controller 4 15,000. 00 720. 00
2. 2. 3 Chemical Engineer 3 15,000. 00 540. 00
Sub Total 8 1,740. 00
Employee‟s Benefit And
2,599. 20
Expense (20% Of Basic Salary)
Total Direct Labor Cost 74 - 15,595. 20
Permanent Staff 142
Temporary Staffs 17 13,412. 80
Grand Total 159. 00 - 48,030. 40

6. 2. TRAINING REQUIREMENT
The production of Lubricating Oil and Grease involves chemical reaction that needs

34
special training during installation of the machineries. The company will arrange one
week training at the start of the project for all of its staffs.

The production of Lubricating Oil and Grease is passes through complex unit operations
that need special training. The process needs special training. The company will arrange
one day training at the start of the project for all of its staffs and inputs certification
process from its customers.

35
 7. PROJECT ORGANIZATION AND
MANAGEMENT
7. 1. PROJECT ORGANIZATION
The first step to be taken in the implementation of the lubricating oil and grease
production project is the parts of a suitable project organization. The following key
phases are identified for the execution of project without any cost or time overruns.
These phases are not mutually exclusive and some degree of over lapping is envisaged.
These are
 Appraisal of the feasibility report,
 Financial closure;
 Detailed planning;
 Procurement packages including inspection and expediting;
 Project management and cost control;
 Construction phase; and
 Commissioning and performance testing.

The project implementation team can be organization in different functional team as

more described below:
 Project management team: -in order to ensure the timely completion of the project at
reasonable cost planning and organizing of the project and staffing the project with
proper manpower is highly essential.

The project management team is headed by the Project manager assisted by legal
advisor, Auditor, financial and administrative team as support functions and shall have
the following core functional departments
 Technical, Engineering and Project Quality Control Team: for the preparation of
designs, specification and bill of quantities; assistance in tendering and contracting
processes. Quality control involves inspection of any delivery and actual project

36
 progress at planned intervals, checking completion of documentation, training,
commissioning and handover of all the various components of the project. The team
can be assisted by engineering and design consultant until completion of construction.
 Procurement Supply Team: The project team will procure machinery, equipment,
production supplies and all other requirements for the implementation as per the
schedule developed and as per their availability from foreign and local sources with
optimized time and cost schedule.
 Administration and Finance: this team will manages and control project activities
related financial transaction, security, personnel etc.

The implementation team is proposed to have vast experience in implementation of

related to Lubricating Oil and Grease processing projects. The team will directly report
to the management team organized from the stockholders about the progress of the
project implementation core activities. The implementation of the envisaged industry
involves a number of activities and processes or functions which have to be carried out in
order to bring the production into successful operation. The different functions in the
project implementation are organized into four broad groups, namely, project
management, project engineering, procurement and construction and project quality
control which are described below.

1. Project Management: Like all other management functions, the management of the
project involves planning, controlling, organizing and staffing activities. Time and
cost control will be the most important aspect of the project management. Since the
implementation of the project will involve several parties including the owner,
consultant, suppliers, contractors and government authorities. Therefore, adequate
mechanisms should be in place for coordinating the various project sectors.

2. Project engineering: Project engineering involves scoping of the project into

different lots of work; the preparation of designs, specification and bill of quantities;
management assistance in tendering and contracting processes; and incorporating, as
necessary, change and modifications in the process of the project implementation.

37
 3. Procurement and construction: Procurement and construction are at the center of
the implementation of the project as all other activities are meant to facilitate them.
The project team will procure machinery, equipment, production supplies and all
other requirements for the implementation as per the schedule developed and as per
their availability from foreign and local sources with optimized time and cost
schedule.

4. Project quality control: In order to ensure achieving the intended purpose, it is

important to exercise adequate quality control throughout the implementation of the
project. Quality control involves inspection of any delivery and actual project
progress at planned intervals, checking completion of documentation, training,
commissioning and handover of all the various components of the project this could be
achieved by establishing strong project implementation team and / or contracting the
supervision work for independent consulting firm.

7. 2 IMPLEMENTATION SCHEDULE
The implementation schedule covers the activities starting from the project evaluation,
compensation payment to land owner, construction of the Lubricating Oil and Grease
Production premises, bid-purchase-trial run of machineries, and commissioning. It is
envisaged that the complete implementation program requires a total of 12 months as
seen in FIGURE 7. 1.

FIGURE 7. 1 : PROJECT IMPLEMENTATION SCHEDULE

Months
SR. 10-
NO. ACTIVITY 1-3 4-5 6-7 8-9 11 12
1 Preparatory Period
1. 1 Approval Of The Study XX

38
 1. 2 Financial Arrangement XX
Tender Document Preparation For
2 Machinery Supply XX
3 Tendering For Machinery Supply XX
Tender Evaluation, Negotiation And
4 Contracting XX XX
Design, Engineering And Manufacture
5 Of Machinery And Equipment XX
6 Equipment Delivery XX
7 Erection XX
8 Manpower Recruitment And Training XX
9 Trial Run And Commissioning XX
10 Start Operation XX

The formation of implementation team, employment of the implementation consultant and

financial arrangement will be carried out within five days after the approval of the
feasibility study.

Machinery and Equipment: Tender document preparation for production machinery and
equipment will start days after project approval and will take 25 days period. Tender
floating will start 1 month after the approval of the project study and will be completed
within month. Tender evaluation, contract negotiation, signing and LC opening, which
will also start 14 days after the approval of the project, will be completed within 10 days.
Design, engineering and Lubricating Oil and Grease Production machinery and
equipment will start after 15 days from project approval and supply will be completed
within 1 days' time frame from contract is signed.

Erection of machinery and equipment will start after completion of the machinery and
equipment delivery and will take one month. Delivery of raw materials will be arranged
before of erection of machinery and equipment is completed.

39
Building and Civil Works: Finalizing of the remaining building and civil works
construction will commence after 12 days from approval of the project and will take 6
months for completion.

Recruitment and training of human resource will start 9 days after the project approval
and before the start of erection of machinery and equipment and will continue up to
commissioning and start up. The production will start commissioning 11 month after the
project approval and will be completed in 1 month. Similarly technology and knowhow
transfer will be conducted starting from together with the erection and commissioning
activities for one month duration.

Finally, the industry will start production at the end of 12th months from the approval of
the project and be operational then after. Moreover project activities will be handled by
project management tools so as to optimize time and project cost utilization towards
realization of the project on the ground with minimum project implementation cost and
time as per the planned duration. Many activities of the project may undertake ion
similar period if it does not needs sequential work plan.

7. 3. IMPLEMENTATION COST
The Lubricating Oil and Grease Production project implementation cost for which
comprises project office running and follow-up expenses, and erection and
commissioning is estimated at ETB 5. 16 million the breakdown of which is indicated in
TABLE 7. 1.

TABLE 7. 1 : IMPLEMENTATION COST

SR. DURATION COST ( IN 1000 ETB)

POSITION NO.
NO. MONTH MONTHLY ANNUAL
I Project Staff
1. 1 Project Manager 1 12 40,000. 00 480. 00

40
1. 1. 1 Project Coordinator 1 12 25,000. 00 300. 00
1. 1. 2 Executive Secretary 1 12 17,000. 00 204. 00
Finance And Administrative
1. 2 12 0. 00
Team
1. 2. 1 Accountant 1 12 18,000. 00 216. 00
Personnel And General
1. 2. 2 1 12 15,000. 00 180. 00
Service
1. 2. 3 Driver 1 12 25,000. 00 300. 00
1. 2. 4 Security Guards 2 12 15,000. 00 360. 00
Procurement And Supply
1. 3 12 0. 00
Team
1. 3. 1 Procurement Expert 1 12 18,000. 00 216. 00
Supplies And Store
1. 3. 2 1 12 16,000. 00 192. 00
Management Expert
1. 3. 3 Store Keeper 1 12 15,000. 00 180. 00
Engineering, Technical And
1. 4 12 0. 00
Quality Control Team
1. 4. 1 Chemical Engineer 1 12 20,000. 00 240. 00
1. 4. 2 Civil Engineer 1 12 22,000. 00 264. 00
1. 4. 3 Mechanical Engineer 1 12 22,000. 00 264. 00
Electrical And Automation
1. 4. 4 1 12 22,000. 00 264. 00
Engineer
Sub Total 3,660. 00
Ii Project Supplies And Office Running
Sr. No. Descriptions Qty. Unit U. Cost Amount
1 Fax 1 Pcs 23,000. 00 23. 00
2 Telephone 1 Pcs 23,000. 00 23. 00
3 Printer 1 Pcs 23,000. 00 23. 00
4 Office Furniture 10 Set 23,500. 00 235. 00
5 Office Running Cost 1 Set 365,000. 00 365. 00

41
Sub Total 669. 00

Iii Detailed Design, Supervision, Erection And Commissioning

Engineering, Erection And

1 501. 00
Commissioning Service
Sub Total 501. 00
Iv Erection Machineries Rent
Sr. No. Rate/ Duration
Descriptions Qty. Cost
No. Days
1 Crane 2,200 150 1 330. 00
Grand - Total 5,160. 00

42
 8. FINANCIAL ANALYSIS
The financial analysis of the Lubricating Oil and Grease Manufacturing Plant is based on
the data presented in the previous chapters and the following assumptions as seen in
TABLE 8. 1.

TABLE 8. 1 : ASSUMPTIONS RELATED TO THE PROJECT

ASSUMPTIONS UNIT VALUE

Tax Holidays Years 1
Bank Interest % 15. 00
Discount Cash Flow % 12. 00
Raw Material Local Days 20
Raw Material Foreign Days 0
Factory Supplies In Stock Days 30
Spare Parts In Stock And Maintenance Days 50
Cash In Hand Day 30
Accounts Payable Days 30
Work In Progress Days 2
Finished Products Days 20
Accounts Receivable Days 20
Source Of Finance Loan 49%
Source Of Finance Capital / Equity 51%
Machinery And Equipment % 15%
Office Furniture and Equipment % 10%
Building and Civil Work % 3%
Vehicle % 15%

43
8. 1. TOTAL INITIAL INVESTMENT COST
The total investment cost of the project including working capital is estimated at ETB
137. 00 million (see TABLE 8. 2). From the total investment, the highest share of cost is
accounted by fixed investment (ETB 122. 99 million or 89. 77%) followed by initial
working capital cost (ETB 8. 85 million or 6. 46%) and pre-operating cost (ETB 5. 16
million or 3. 77%). There is a huge foreign currency for this project as the machines are
imported from international manufacturers. The required foreign currency of the project
is about ETB 38. 10 million or 27. 81% of the initial investment of the project.

TABLE 8. 2 : INITIAL INVESTMENT COST („000 ETB)

SR. COST ITEMS LOCAL COST FOREIGN TOTAL COST %

NO. COST SHARE
1 Fixed Investment

1. 1 Land-Compensation
Fee2 00. 00 00. 00 00. 00
1. 2 Building And Civil
64,140. 00 64,140. 00 46. 82
Work
1. 3 Machinery And
41,910. 00 41,910. 00 30. 59
Equipment
1. 4 Vehicles 11,420. 00 11,420. 00 8. 34

1. 5 Office Furniture And

3,805. 50 3,805. 50 2. 78
Equipment
1. 6 IVTW Wastewater
1,715. 02 1,715. 02 1. 25
Treatment Technology
Sub total 122,990. 52 122,990. 52 89. 77

2
The compensation is already paid.

44
2 Pre-operation Cost

2. 1 Pre-Expenditure2* 5,160. 00 5,160. 00 3. 77

2. 2 Interest During
0. 00 00. 00 0. 00
Construction
Sub -Total 5,160. 00 5,160. 00 3. 77

TOTAL FIXED
128,150. 52 128,150. 52 93. 54
INVESTMENT
3 Working Capital 3* 8,854. 32 8,854. 32 6. 46

GRAND TOTAL COST 137,004. 84 137,004. 84 100. 00

2*
: Pre-operating cost includes project implementation cost such as installation, start- up,
commissioning, project engineering, project management etc and capitalized interest
during construction.

3*
The total working capital required at full capacity operation is ETB 12. 64 million.
However, only the initial working capital of ETB 8. 85 million during the first year of
production is assumed to be funded through external sources. During the remaining years
the working capital requirement will be financed by funds to be generated internally (for
detail working capital requirement see Appendix 1).

8. 2. PRODUCTION COST
The annual production cost at full operation capacity is estimated at ETB 131. 27 million
(see TABLE 8. 3). The cost of raw material account for 40. 15% of the production cost.
The other major components of the production cost are direct labor, labor overheads, cost
of finance, renting cost for warehouse, depreciation, maintenance and repair, utilities,
administration, and marketing / distribution has been described in the following table.
Further detail production costs presented in Appendix 2.

45
TABLE 8. 3 : ANNUAL PRODUCTION COST AT FULL CAPACITY

SR. NO. ITEMS COST (000 ETB) %

1 Raw Material And Inputs 52,704. 30 40. 15
2 Utilities 4,746. 30 3. 62
3 Maintenance And Repair 10,308. 25 7. 85
4 Labor Direct 15,595. 20 11. 88
5 Labor Overheads 19,022. 40 14. 49
6 Administration Costs 3,500. 00 2. 67
7 Marketing / Distribution 6,000. 00 4. 57
8 Other Expenses 5,400. 00 4. 11
TOTAL OPERATING COSTS 117,276. 45 89. 34
8 Depreciation 6,946. 28 5. 29
9 Cost of Finance 7,048. 90 5. 37
TOTAL PRODUCTION COST 131,271. 63 100. 00

8. 3. BANK LOAN REPAYMENT SCHEDULE

The total amount of bank loan including interest will be fully paid back within ten years‟
time (SEE TABLE 8. 4).

TABLE 8. 4: BANK LOAN REPAYMENT SCHEDULE (IN 000‟ ETB)

YEAR REPAYMEN INTERES TOTAL

DISBURSEM T DEBT T PAYMEN
ENT BALANCE PAYABL T PER
INTEREST
E YEAR
Year 0 67,132. 37
Year 1 6,713. 24 60,419. 14 10,069. 86 16,783. 09
Year 2 6,713. 24 53,705. 90 9,062. 87 15,776. 11

46
Year 3 - 6,713. 24 46,992. 66 8,055. 88 14,769. 12
Year 4 - 6,713. 24 40,279. 42 7,048. 90 13,762. 14
Year 5 - 6,713. 24 33,566. 19 6,041. 91 12,755. 15
Year 6 - 6,713. 24 26,852. 95 5,034. 93 11,748. 17
Year 7 - 6,713. 24 20,139. 71 4,027. 94 10,741. 18
Year 8 - 6,713. 24 13,426. 47 3,020. 96 9,734. 19
Year 9 - 6,713. 24 6,713. 24 2,013. 97 8,727. 21
Year 10 - 6,713. 24 0. 00 1,006. 99 7,720. 22
Total 67,132. 37 67,132. 37 302,095. 68 55,384. 21 122,516. 58

8. 4. FINANCIAL EVALUATION
8. 4. 1. Profitability
Based on the projected profit and loss statement, the project will generate a profit
throughout its operation life. Annual net profit after tax ranges from ETB 24. 16 million
to ETB 39. 16 million during the life of the project. Moreover, at the end of the project
life, the accumulated net cash flow amounts to ETB 74. 76 million and grows to ETB 75.
78 million. For profit and loss statement and cash flow projection see Appendix 3 and 4,
respectively.

8. 4. 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 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.

47
8. 4. 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 for capacity utilization and sales value estimated by using income
statement projection are computed as followed.
 BESV = Break- Even Sales Value = ((Fixed Cost + Financial Cost) / Variable
Margin ratio) (%)= ETB 859. 65 million.
 BECU = Break -Even Capacity utilization = ((Break-even Sales Value) / Sales
revenue)* 100%= 52. 48%.

8. 4. 4. Pay-back Period
The pay -back period, also called pay - off period is defined as the period required for
recovering 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 i. e. 4 years and 9
months.

8. 4. 5. Internal Rate of Return, IRR

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 in a bank account. Accordingly, the IRR of this project is computed to be 21. 14%
indicating the viability of the project.

48
8. 4. 6. Net Present Value, NPV
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 principle, a project is accepted if the NPV is non-negative.

Accordingly, the NPV of the project at 12% discount rate is found to be ETB 51. 48
million which is acceptable. For detail discounted cash flow sees in Appendix 5.

8. 5. ECONOMIC AND SOCIAL BENEFITS

The project can create employment for 142 persons in permanent basis and some
temporary staffs. The industry pays around ETB 48. 03 million per year. The project will
generate ETB 150. 72 million in terms of tax revenue to the government. It also
generates income for the city administration in terms of tax revenue and payroll tax. The
establishment of such factory will have a foreign exchange saving effect to the country
by substituting the current imports. The project will also create forward linkage with the
service sector such as chemical, industry, automobiles, and others and backward linkage
with the chemical, industry, automobiles, and others. The industry will participate in
income generating activities of the societies by donating fund from its profit.

49
APPENDIX: FINANCIAL ANALYSIS OF THE
LUBRICATING OIL AND GREASE
MANUFACTURING PLANT BASED ON
COMFAR

50
APPENDIX. 1: NET WORKING CAPITAL (IN 000' ETB)
Item Year 1 Year 2 Year 3 Year 4 Year 5
Production Capacity 0. 7 0. 8 0. 9 1 1
Total Inventory 18,692. 46 21,362. 81 24,033. 16 26,703. 51 26,703. 51
Accounts Receivable 2,459. 53 2,810. 90 3,162. 26 3,513. 62 3,513. 62
Cash-In-Hand 3,689. 30 4,216. 34 4,743. 39 5,270. 43 5,270. 43
Current Assets 12,543. 62 14,335. 57 16,127. 52 17,919. 46 17,919. 46
Accounts Payable 3,689. 30 4,216. 34 4,743. 39 5,270. 43 5,270. 43
Current Liabilities 3,689. 30 4,216. 34 4,743. 39 5,270. 43 5,270. 43
Total Net Working Capital 8,854. 32 10,119. 23 11,384. 13 12,649. 03 12,649. 03

Year 6 Year 7 Year 8 Year 9 Year 10

1 1 1 1 1
26,703. 51 26,703. 51 26,703. 51 26,703. 51 26,703. 51
3,513. 62 3,513. 62 3,513. 62 3,513. 62 3,513. 62
5,270. 43 5,270. 43 5,270. 43 5,270. 43 5,270. 43
17,919. 46 17,919. 46 17,919. 46 17,919. 46 17,919. 46
5,270. 43 5,270. 43 5,270. 43 5,270. 43 5,270. 43
5,270. 43 5,270. 43 5,270. 43 5,270. 43 5,270. 43
12,649. 03 12,649. 03 12,649. 03 12,649. 03 12,649. 03

51
APPENDIX 1. 2: PRODUCTION COST (IN 000 ETB)
Item year 1 Year 2 Year 3 Year 4 Year 5
Raw Materials and Inputs 36,893. 01 42,163. 44 47,433. 87 52,704. 30 52,704. 30
Utilities 2,847. 78 3,797. 04 4,271. 67 4,746. 30 4,746. 30
Repair And Maintenance 10,305. 25 10,306. 25 10,307. 25 10,308. 25 10,309. 25
Direct Labour 9,357. 12 12,476. 16 14,035. 68 15,595. 20 15,595. 20
Overhead Labour 11,413. 44 15,217. 92 17,120. 16 19,022. 40 19,022. 40
Administrative Costs 2,450. 00 2,800. 00 3,150. 00 3,500. 00 3,500. 00
Marketing Costs 4,200. 00 4,800. 00 5,400. 00 6,000. 00 6,000. 00
Other Expenses 5,400. 00 5,400. 00 5,400. 00 5,400. 00 5,400. 00
Total Operating Costs 82,866. 60 96,960. 81 107,118. 63 117,276. 45 117,277. 45
Depreciation 10,304. 25 9,008. 54 7,898. 36 6,946. 28 6,128. 95
Cost Of Finance 10,069. 86 9,062. 87 8,055. 88 7,048. 90 6,041. 91
Total 103,240. 71 115,032. 23 123,072. 88 131,271. 63 129,448. 32

52
Year 6 Year 7 Year 8 Year 9 Year 10
52,704. 30 52,704. 30 52,704. 30 52,704. 30 52,704. 30
4,746. 30 4,746. 30 4,746. 30 4,746. 30 4,746. 30
10,310. 25 10,311. 25 10,312. 25 10,313. 25 10,314. 25
15,595. 20 15,595. 20 15,595. 20 15,595. 20 15,595. 20
19,022. 40 19,022. 40 19,022. 40 19,022. 40 19,022. 40
3,500. 00 3,500. 00 3,500. 00 3,500. 00 3,500. 00
6,000. 00 6,000. 00 6,000. 00 6,000. 00 6,000. 00
5,400. 00 5,400. 00 5,400. 00 5,400. 00 5,400. 00
117,278. 45 117,279. 45 117,280. 45 117,281. 45 117,282. 45
5,426. 51 4,822. 05 4,301. 19 3,851. 68 3,463. 09
5,034. 93 4,027. 94 3,020. 96 2,013. 97 1,006. 99
127,739.89 126,129.45 124,602.60 123,147.11 121,752.53

53
APPENDIX 1. 3: NET INCOME STATEMENT (IN 000 ETB)
Item Year0 Year1 Year 2 Year 3 Year 4
Sales revenue - 127,400. 00 145,600. 00 163,800. 00 182,000. 00
Less variable costs 46,250. 13 54,639. 60 61,469. 55 68,299. 50
Variable Margin - 81,149. 87 90,960. 40 102,330. 45 113,700. 50
in % of sales revenue 63. 70 62. 47 62. 47 62. 47
Less fixed costs 137,004. 84 36,616. 47 42,321. 21 45,649. 08 48,976. 95
Operational Margin (137,004. 84) 44,533. 40 48,639. 19 56,681. 37 64,723. 55
in % of sales revenue 34. 96 33. 41 34. 60 35. 56
Financial costs 10,069. 86 9,062. 87 8,055. 88 7,048. 90
Depreciation 10,304. 25 9,008. 54 7,898. 36 6,946. 28
Gross Profit (137,004. 84) 24,159. 29 30,567. 77 40,727. 12 50,728. 37
in % of sales revenue 18. 96 20. 99 24. 86 27. 87

Income (corporate) tax - - 14,254. 49 17,754. 93

Net Profit (137,004. 84) 24,159. 29 30,567. 77 26,472. 63 32,973. 44

in % of sales revenue 18. 96 20. 99 16. 16 18. 12

54
Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
182,000. 00 182,000. 00 182,000. 00 182,000. 00 182,000. 00 182,000. 00

68,299. 50 68,299. 50 68,299. 50 68,299. 50 68,299. 50 68,299. 50

113,700. 50 113,700. 50 113,700. 50 113,700. 50 113,700. 50 113,700. 50

62. 47 62. 47 62. 47 62. 47 62. 47 62. 47

48,977. 95 48,978. 95 48,979. 95 48,980. 95 48,981. 95 48,982. 95

64,722. 55 64,721. 55 64,720. 55 64,719. 55 64,718. 55 64,717. 55

35. 56 35. 56 35. 56 35. 56 35. 56 35. 56

6,041. 91 5,034. 93 4,027. 94 3,020. 96 2,013. 97 1,006. 99

6,128. 95 5,426. 51 4,822. 05 4,301. 19 3,851. 68 3,463. 09

52,551. 68 54,260. 11 55,870. 55 57,397. 40 58,852. 89 60,247. 47

28. 87 29. 81 30. 70 31. 54 32. 34 33. 10

18,393. 09 18,991. 04 19,554. 69 20,089. 09 20,598. 51 21,086. 62

34,158. 59 35,269. 07 36,315. 86 37,308. 31 38,254. 38 39,160. 86

18. 77 19. 38 19. 95 20. 50 21. 02 21. 52

55
APPENDIX 1. 4: CASH FLOW FOR FINANCIAL MANAGEMENT (IN 000 ETB)
Item year 0 Year 1 Year 2 Year 3 Year 4
Total Cash Inflow
Inflow Funds
Equity 69,872. 47
Bank Loan 67,132. 37
Inflow Operation - 127,400. 00 145,600. 00 163,800. 00 182,000. 00
Other Income - - - -
Sub Total 137,004. 84 127,400. 00 145,600. 00 163,800. 00 182,000. 00
Total Cash Outflow
Increase In Fixed Assets 122,990. 52 - - -
Pre-Production Costs 5,160. 00
Initial Working Capital 8,854. 32
Operating Costs - 82,866. 60 96,960. 81 107,118. 63 117,276. 45
Income Tax - - - 14,254. 49 17,754. 93
Financial Costs - 10,069. 86 9,062. 87 8,055. 88 7,048. 90
Loan Repayment - 4,475. 49 4,475. 49 4,475. 49 4,475. 49
Sub Total 137,004. 84 97,411. 95 110,499. 17 133,904. 50 146,555. 77

56
Net Cash Flow - 29,988. 05 35,100. 83 29,895. 50 35,444. 23
Cumulative Cash Balance 29,988. 05 65,088. 88 64,996. 32 65,339. 73
Net Cash Flow For NPV,
IRR (137,004. 84) 29,988. 05 35,100. 83 29,895. 50 35,444. 23

Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

182,000. 00 182,000. 00 182,000. 00 182,000. 00 182,000. 00 182,000. 00

- - - - - -
182,000. 00 182,000. 00 182,000. 00 182,000. 00 182,000. 00 182,000. 00

- - - - - -

117,277. 45 117,278. 45 117,279. 45 117,280. 45 117,281. 45 117,282. 45

57
18,393. 09 18,991. 04 19,554. 69 20,089. 09 20,598. 51 21,086. 62
6,041. 91 5,034. 93 4,027. 94 3,020. 96 2,013. 97 1,006. 99
4,475. 49 4,475. 49 4,475. 49 4,475. 49 4,475. 49 4,475. 49
146,187. 95 145,779. 91 145,337. 58 144,865. 99 144,369. 43 143,851. 55
35,812. 05 36,220. 09 36,662. 42 37,134. 01 37,630. 57 38,148. 45
71,256. 28 72,032. 14 72,882. 51 73,796. 43 74,764. 58 75,779. 03
35,812. 05 36,220. 09 36,662. 42 37,134. 01 37,630. 57 38,148. 45

58
APPENDIX 1. 5: DISCOUNTED CASH FLOW (IN 000 ETB) @12% DISCOUNT RATE
Item year0 Year 1 Year 2 Year 3 Year 4
Total Cash Inflow 137,004. 84 127,400. 00 145,600. 00 163,800. 00 182,000. 00
Total Cash Outflow 137,004. 84 97,411. 95 110,499. 17 133,904. 50 146,555. 77
Net Cash Flow - 29,988. 05 35,100. 83 29,895. 50 35,444. 23
Net Cash Flow for NPV & IRR
(137,004. 84) 29,988. 05 35,100. 83 29,895. 50 35,444. 23
Calculation

Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

182,000. 00 182,000. 00 182,000. 00 182,000. 00 182,000. 00 182,000. 00
146,187. 95 145,779. 91 145,337. 58 144,865. 99 144,369. 43 143,851. 55
35,812. 05 36,220. 09 36,662. 42 37,134. 01 37,630. 57 38,148. 45
35,812. 05 36,220. 09 36,662. 42 37,134. 01 37,630. 57 38,148. 45

Net Present Value, NPV, 000 51,484.41

Internal Rate Of Return, IRR 21. 14%

59
60
61
 REFERENCES
 K. R. G. Hein. Future energy supply in Europe—challenge and chances. Fuel.
(2005)
 Q. Lin et al. The combined effects of phytoremediation and biostimulation in
enhancing habitat restoration and oil degradation of petroleum contaminated
wetlands. Ecol. Eng. (1998)
 W. J. Mitsch et al. Ecol. Eng. : a field whose time has come. Ecol. Eng. (2003)
 T. Rauckyte et al. Determination of heavy metals and volatile aromatic compounds
in used engine oils and sludges. Fuel. (2006)
 American Petroleum Institute (API). Used Motor Oil—Collection and Recycling.
(2010)
 ATSDR. Agency for Toxic Substances and Disease Registry. Toxicological Profile
for used Mineral-based Crankcase Oil. (1997)
 B. Boughton et al. . Environmental assessment of used oil management methods.
Environ. Sci. Technol. (2004)

62