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SMEDA Oxygen Gas Producing Plant
SMEDA Oxygen Gas Producing Plant
June, 2006
Pre-feasibility Study Oxygen Gas Producing Plant
1 INTRODUCTION TO SMEDA.................................................................................................... 4
2 PURPOSE OF THE DOCUMENT ............................................................................................... 4
3 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT..................... 5
3.1 SWOT ANALYSIS ................................................................................................................ 5
3.1.1 Strengths ..................................................................................................5
3.1.2 Weaknesses..............................................................................................5
3.1.3 Opportunities ...........................................................................................5
3.1.4 Threats .....................................................................................................6
3.2 KEY SUCCESS FACTORS / PRACTICAL TIPS FOR SUCCESS .......................................... 6
3.2.1 Sales promotion........................................................................................6
3.2.2 Other Success Factors ..............................................................................6
4 PROJECT PROFILE.................................................................................................................... 6
4.1 OPPORTUNITY RATIONALE.............................................................................................. 6
4.2 PROJECT BRIEF................................................................................................................... 7
4.3 PROPOSED BUSINESS LEGAL STATUS ............................................................................ 8
4.4 MARKET ENTRY TIME....................................................................................................... 8
4.5 PROPOSED LOCATION....................................................................................................... 8
4.6 PROJECT CAPACITY........................................................................................................... 8
4.7 PROJECT INVESTMENT ................................................................................................... 12
4.8 PROJECT PARAMETERS .................................................................................................. 12
5 MARKET INFORMATION ....................................................................................................... 12
5.1 OXYGEN GAS PRODUCERS IN PAKISTAN..................................................................... 12
6 PRODUCT................................................................................................................................... 13
6.1 PRODUCTION PROCESS FLOW ....................................................................................... 13
6.1.1 Process SKID .........................................................................................15
6.1.2 Expansion Engine...................................................................................19
6.1.3 Cylinder Filling Manifold/Station...........................................................21
7 TECHNOLOGY AND PROCESSES.......................................................................................... 22
7.1 MACHINERY REQUIREMENT ......................................................................................... 22
7.2 LAND REQUIREMENT ............................................................................................................ 24
7.3 BUILDING REQUIREMENT ...................................................................................................... 24
7.4 MACHINERY REQUIREMENT .................................................................................................. 25
7.5 FITTINGS & INSTALLATIONS REQUIREMENT ............................................................. 25
7.6 OFFICE EQUIPMENTS REQUIREMENT........................................................................... 25
7.7 FURNITURE & FIXTURES REQUIREMENT..................................................................... 26
7.8 VEHICLES REQUIREMENT .............................................................................................. 26
7.9 RAW MATERIAL REQUIREMENT ............................................................................................. 26
7.10 HUMAN RESOURCE REQUIREMENTS....................................................................................... 27
7.11 UTILITIES REQUIREMENT ...................................................................................................... 28
8 FINANCIAL ANALYSIS............................................................................................................ 29
8.1 PROJECT COST ...................................................................................................................... 29
8.2 PROFIT & LOSS STATEMENT .................................................................................................. 30
8.3 BALANCE SHEET ................................................................................................................... 31
8.4 CASH-FLOW STATEMENT ....................................................................................................... 32
9 KEY ASSUMPTIONS................................................................................................................. 34
DISCLAIMER
The purpose and scope of this information memorandum is to introduce the subject
matter and provide a general idea and information on the said area. All the material
included in this document is based on data/information gathered from various sources and
is based on certain assumptions. Although, due care and diligence has been taken to
compile this document, the contained information may vary due to any change in any of
the concerned factors, and the actual results may differ substantially from the presented
information. SMEDA does not assume any liability for any financial or other loss
resulting from this memorandum in consequence of undertaking this activity. The
prospective user of this memorandum is encouraged to carry out additional diligence and
gather any information he/she feels necessary for making an informed decision.
For more information on services offered by SMEDA, please contact our website:
www.smeda.org.pk
DOCUMENT CONTROL
Prepared by SMEDA-Punjab
1 INTRODUCTION TO SMEDA
The Small and Medium Enterprise Development Authority (SMEDA) was established
with the objective to provide fresh impetus to the economy through the launch of an
aggressive SME Support Program.
Since its inception in October 1998, SMEDA had adopted a sectoral SME Development
Approach. A few priority sectors were selected on the criterion of SME presence. In
depth research was conducted and comprehensive development plans were formulated
after identification of impediments and retardants. The all-encompassing sectoral
development strategy involved recommending changes in the regulatory environment by
taking into consideration other important aspects including Finance, Marketing,
Technology and Human Resource Development.
SMEDA has so far successfully formulated strategies for sectors including, Fruits and
Vegetables, Marble and Granite, Gems and Jewelry, Marine Fisheries, Leather and
Footwear, Textiles, Surgical Instruments, Transport and Dairy. Whereas the task of SME
development at a broader scale still requires more coverage and enhanced reach in terms
of SMEDA’s areas of operation.
Along with the sectoral focus a broad spectrum of Business Development Services is also
offered to the SMEs by SMEDA. These services include identification of viable business
opportunities for potential SME Investors. In order to facilitate these Investors, SMEDA
provides business guidance through its help desk services as well as development of
Project Specific Documents. These documents consist of information required to make
well-researched investment decisions. Pre-feasibility Studies and Business Plan
Development are some of the services provided to enhance the capacity of individual
SMEs to exploit viable business opportunities in a better way.
This document is in the continuation of this effort to enable potential investors to make
well-informed Investment Decisions.
essential that our report be read in its entirety with financial model in order to fully
comprehend the impact of key assumptions on the range of values determined.
This particular Pre-feasibility is regarding "Oxygen Gas Manufacturing Unit". Before
studying the whole document one must consider following critical aspects, which forms
basis of any Investment Decision.
3.1.4 Threats
In case of the power failure to the engine its braking mechanism will fail and this
accelerating speed of the machine.
The fire extinguisher should be installed and smoking should be banned near the
production area as the out of the project is very sensitive and highly flammable.
Expected losses during the initial stages of the Project as a result of competitors’
campaign.
3. 2 KEY SUCCESS FACTORS / PRACTICAL TIPS FOR SUCCESS
There are many units existing which are in the business of industrial & medical
manufacturing but still they are not successful in catering the demand. So there is a
potential for new entrepreneurs to enter the market. Key success factors will be:
3.2.1 Sales promotion
Another critical success factor of this proposed pre-feasibility is the Marketing and
Promotion of the oxygen both in the industrial & medical fields. This involves dedication
and hard work from the marketing personals and detailed advertising on the Media along
with the use of other automated marketing techniques.
3.2.2 Other Success Factors
Some other factors critical to the success of this proposed project include;
Advance Orders for sale can ensure the success of the Business.
Responsiveness to Customers' demands and requirements.
Available for enquiries, designated and known contact persons.
Low Prices
Reliability in delivery
Quality Certifications.
4 PROJECT PROFILE
4. 1 OPPORTUNITY RATIONALE
Oxygen gas comprises 21 percent of atmospheric gas. Its symbol is O2. Atomic weight of
oxygen is 16 and atomic no. is 8. Oxygen gas is non metallic element. Oxygen is
colorless, odorless and tasteless. Oxygen reacts with all elements, but not with inert gases
to form compound called oxides. Oxygen support combustion and support flammable
materials to burn more rapidly. And this combustion supporting property prefers it for
different industrial applications.
Atmospheric air used to produce Oxygen and Nitrogen, in most industrial processes.
Atmospheric air mainly contains the following elements:-
SMALL CAPACITY
MEDIUM CAPACITY
HIGHER CAPACITY
4. 7 PROJECT INVESTMENT
Total Project cost is Rs.99.82 million worked out in the following table:-.
4. 8 PROJECT PARAMETERS
5 MARKET INFORMATION
5. 1 OXYGEN GAS PRODUCERS IN PAKISTAN
Major oxygen gas producing units currently in operation in Pakistan are reproduced
below:
Table 3: Major Players
Sr. COMPANY NAME ADDRESS
No.
1- Fine Gas Company (Pvt.) Ltd. Kot Lakh Pat, Lahore
2- BOC Gas Limited Shalimar Link Road, Lahore.
3- Medi Gas (Pvt.) Ltd. Kot Lakh Pat, Lahore
6 PRODUCT
6. 1 PRODUCTION PROCESS FLOW
Air is drawn from atmosphere through Suction Air Filter. (1).Air is drawn from
atmosphere through Suction Air Filter to prevent dust from getting into the system.
The air is then compressed in a four stage Air Compressor (2) with after cooler (3)
mounted on the process skid to a maximum pressure of 45-50 Kgs./Cm2 for plant
starting conditions and a pressure of 38 – 40 Kgs./Cm2 for best results normal running
conditions.
Depending on ambient conditions and good operations the operating pressure of the Air
Separations Unit is brought down to 40 Kg/Cm2 as per past experience. Air Compressor
has inter-coolers between stages and an After-Cooler after 4th stage. The air compressor
should be maintained properly in good condition as it is the main source of air supply to
the plant.
Water Pump
Inlet & Outlet Water Lines
Drain Manifold complete with Ball
Moisture
The air then enters into cascade an Evaporating Cooler (5) on the process skid where it
gets cooled to about 20 Deg.C. This unit is optional. The cooler is a cubical vessel where,
there is pipe coil and is inter connected. The coils are half submerged in water in the
vessel Dry Nitrogen will be bubbled through this water to become wet gas. As the water
vaporizes, it requires latent heat which is absorbed from water itself. So, water gets
cooled. Thus, air inside the pipe coil will get cooled. Compressed air, cooled in
evaporation cooler will enter into a Moisture Separator.
Moisture condensed as water will be separated and drained once in an hour. It is
important to drain moisture from the bottom of the Oil Absorber (9) at regular intervals
and also change the Alumina every 6 to 12 months. After this the air will pass through an
additional cooler called Chilling Unit (7).
After this the air will pass through Oil Absorber. (9) Packed with Alumina balls. Here the
Oil Vapor carried over from Air Compressor will be removed. If this oil vapor is not
removed sufficiently, due to spent carbon or due to high temperature of process air, the
oil vapor will damage the Molecular Sieves. To obtain a long life of Molecular Sieve
ensure the Alumina is well maintained.
The air will then be into two streams. The main air stream will enter Expansion Engine
(14) at 40 Kgs./Cm2 and will be expanded to 5 Kgs./Cm2 and –150 to 160 Deg.C the
rest of the air will pass through Heat Exchanger No. 2 (17) to be cooled to about –160
Deg.C. by the outgoing Oxygen and Nitrogen. This air will then be expanded by an
Expansion Valve V3 to form liquid air. Both the air streams will now enter bottom
portion of the Lower Column (19). Operating pressure of the column is around 40
kg/cm2 under normal operating conditions.
6.1.2 Expansion Engine
As the air enters the Lower Column, after the Expansion Engine and after Expansion
Engine valve V3, a part of this air condenses into liquid and falls at the bottom of the
column. This liquid is about 40% Oxygen and 60% Nitrogen and is usually called the
“Rich Liquid” and as Nitrogen is more volatile it rises to top of the lower column where
it gets cold from the condenser and become liquefied. This liquid nearly free of oxygen
collected in the (Pockets in the condenser) trap. As this liquid poor in oxygen is called
poor liquid.
Final separation of the two fractions is achieved in the upper column. Both the poor
liquid are carried into the upper column by two Expansion Valves and the pressure
drops from 4.5/5.0 Kgs. /Cm2 in the lower column to 0.5 Kgs. /Cm2 in the upper
column. The rich liquid enters the middle of the Upper column and as it flows down,
Nitrogen evaporates and Oxygen continues as liquid. The Liquid Nitrogen (Poor
Liquid) enters the top of the column and as it is flows down the column, it comes in
contact with any evaporating Oxygen and condenses the same into liquid, while the
Nitrogen itself becomes a Gas as it is more volatile. This process takes place in each
Gas as it is more volatile. This process takes place in each tray. The entire gaseous
Nitrogen is piped out from the top of the column through Heat Exchangers.
Similarly the Liquid Oxygen at the bottom of the column is carried away to a Liquid
Oxygen Pump from which it is compressed and again passed through the Heat
Exchangers into the Gas Cylinders in the cylinder filling station. As the Liquid Oxygen
travels through the Heat Exchangers, it evaporates into gaseous oxygen filling the
cylinder with gas and giving up its cold to the incoming air Generally the purity of
Oxygen will be 99.5% and Nitrogen about 96%, when the plant is operated exclusively
for oxygen production.
7. 1 MACHINERY REQUIREMENT
Following table shows the plant & machinery requirement for setting up a Oxygen
Manufacturing Unit.
7. 2 Land Requirement
Land for the proposed business can be acquired on rent but it is recommended that it
should be purchased as total infrastructure is required to be established. Total land
required for the Oxygen Gas Manufacturing Unit is approximately 4 Kanals. Land price
per kanal is taken to be Rs. 1,000,000 per Kanal (Raiwind Road, Lahore).
7. 3 Building Requirement
7. 4 Machinery Requirement
Following table shows the plant & machinery requirement for setting up a Oxygen
Manufacturing Unit.
Following fittings & installations are required for factory and management offices.
Following office equipments are required for factory and management offices.
Following furniture & fixtures are required for factory and management offices.
7. 8 VEHICLES REQUIREMENT
The schedule for Vehicles required for the Project is presented below:
The project will be producing medical grade oxygen and Industrial oxygen from free
saturated air sucked from atmosphere and hence there is no requirement for the raw
material other than the air.
Total 1,293,600
* Other benefits include EOBI, Social Security, Gratuity, Medical and Other welfare expenses.
1. Electricity
2. Water
3. Telephone
4. Sui Gas
8 FINANCIAL ANALYSIS
8. 1 Project Cost
Sales - Net of Sales Tax 68,040,000 75,014,100 82,703,045 91,180,107 100,526,068 110,829,990 122,190,064 134,714,546 143,608,669 150,789,103
Cost of Sales 37,467,028 41,427,637 43,938,936 46,774,305 50,760,221 54,622,280 58,965,282 63,858,131 69,090,009 74,788,468
Gross Profit 30,572,972 33,586,463 38,764,109 44,405,802 49,765,847 56,207,710 63,224,782 70,856,415 74,518,660 76,000,635
Operating Expenses:
Administrative Expenses 4,878,614 4,966,511 5,361,084 5,813,513 6,325,991 6,901,651 7,544,513 8,259,468 8,929,413 9,605,599
Marketing & Selling 2,898,465 3,108,069 3,334,620 3,579,614 2,866,201 3,104,209 3,363,587 3,646,351 3,954,712 4,291,095
Expenses
Total Op. Expenses 7,777,079 8,074,580 8,695,704 9,393,127 9,192,192 10,005,860 10,908,101 11,905,820 12,884,125 13,896,694
Operating Profit 22,795,892 25,511,883 30,068,404 35,012,675 40,573,655 46,201,851 52,316,681 58,950,595 61,634,535 62,103,941
Other Income 340,200 375,071 413,515 455,901 502,630 554,150 610,950 673,573 718,043 753,946
Total Op. Profit 23,136,092 25,886,953 30,481,920 35,468,576 41,076,285 46,756,001 52,927,632 59,624,168 62,352,578 62,857,886
Financial & Other
Charges
Mark up on Long Term - 6,638,571 5,240,977 3,843,383 2,445,789 1,048,195 - - - -
Loans
Bank Charges 68,040 75,014 82,703 91,180 100,526 110,830 122,190 134,715 143,609 150,789
Other Charges 1,153,403 958,668 1,257,912 1,576,701 1,926,499 2,279,849 2,640,272 2,974,473 3,110,448 3,135,355
1,221,443 7,672,253 6,581,592 5,511,264 4,472,814 3,438,874 2,762,462 3,109,187 3,254,057 3,286,144
Profit before Taxation 21,914,650 18,214,700 23,900,328 29,957,312 36,603,472 43,317,126 50,165,169 56,514,981 59,098,521 59,571,742
Taxation 5,478,662 4,553,675 5,975,082 7,489,328 9,150,868 10,829,282 12,541,292 14,128,745 14,774,630 14,892,936
Profit after Taxation 16,435,987 13,661,025 17,925,246 22,467,984 27,452,604 32,487,845 37,623,877 42,386,235 44,323,891 44,678,807
Accumulated Profits - - 16,435,987 30,097,012 48,022,258 70,490,242 97,942,846 130,430,691 168,054,568 210,440,803 254,764,694
brought forward
Accumulated Profits - 16,435,987 30,097,012 48,022,258 70,490,242 97,942,846 130,430,691 168,054,568 210,440,803 254,764,694 299,443,501
carried to the Balance
Sheet
8. 3 Balance Sheet
Year - I Year - II Year - III Year - IV Year - V Year - VI Year - VII Year - VIII Year - IX Year - X
RUPEES RUPEES RUPEES RUPEES RUPEES RUPEES RUPEES RUPEES RUPEES RUPEES
Tangible Fixed Assets 87,156,315 78,908,092 71,524,095 64,907,377 58,972,921 53,645,997 48,860,767 44,559,107 40,689,606 37,206,705
Long Term Deposits
Electricity 3,417,120 3,417,120 3,417,120 3,417,120 3,417,120 3,417,120 3,417,120 3,417,120 3,417,120 3,417,120
Current Assets:
Stock in Trade 2,172,002 2,401,602 2,547,185 2,711,554 2,942,622 3,166,509 3,418,277 3,701,921 4,005,218 4,335,563
Stores & Spares 1,224,720 1,350,254 1,488,655 1,641,242 1,809,469 1,994,940 2,199,421 2,424,862 2,584,956 2,714,204
Other Receivables 1,549,768 1,657,096 1,779,522 1,918,016 2,111,170 2,289,128 2,487,472 2,707,931 2,935,121 3,177,504
Accounts Receivable 8,388,493 9,248,314 10,196,266 11,241,383 12,393,625 13,663,971 15,064,528 16,608,643 17,705,178 18,590,437
Cash in Hand / Bank 30,992,152 43,948,868 59,303,487 78,436,072 101,845,177 129,633,457 172,239,912 219,158,590 266,922,944 314,239,897
44,327,136 58,606,133 75,315,115 95,948,267 121,102,063 150,748,005 195,409,611 244,601,946 294,153,417 343,057,605
134,900,571 140,931,345 150,256,331 164,272,764 183,492,104 207,811,122 247,687,498 292,578,174 338,260,144 383,681,430
Capital Introduced 49,914,065 49,914,065 49,914,065 49,914,065 49,914,065 49,914,065 49,914,065 49,914,065 49,914,065 49,914,065
Accumulated Profits 16,435,987 30,097,012 48,022,258 70,490,242 97,942,846 130,430,691 168,054,568 210,440,803 254,764,694 299,443,501
66,350,053 80,011,078 97,936,324 120,404,308 147,856,911 180,344,756 217,968,633 260,354,869 304,678,760 349,357,566
Long Term Loan 39,931,252 29,948,439 19,965,626 9,982,813 - - - - - -
Long Term Deposits 8,750,000 8,750,000 8,750,000 8,750,000 8,750,000 8,750,000 8,750,000 8,750,000 8,750,000 8,750,000
(Cylinders) :
Current Liabilities:
Long Term Loan 9,982,813 9,982,813 9,982,813 9,982,813 9,982,813 - - - - -
Accrued Charges 2,403,888 2,644,409 2,908,997 3,200,058 3,520,241 3,872,462 4,259,924 4,686,155 5,151,197 5,660,710
Mark - up payable - 3,144,586 2,445,789 1,746,992 1,048,195 349,398
Workers' Profit 1,153,403 958,668 1,257,912 1,576,701 1,926,499 2,279,849 2,640,272 2,974,473 3,110,448 3,135,355
Participation Fund
Sales Tax Payable 850,500 937,676 1,033,788 1,139,751 1,256,576 1,385,375 1,527,376 1,683,932 1,795,108 1,884,864
Provision for Taxation 5,478,662 4,553,675 5,975,082 7,489,328 9,150,868 10,829,282 12,541,292 14,128,745 14,774,630 14,892,936
19,869,266 22,221,828 23,604,381 25,135,643 26,885,192 18,716,366 20,968,865 23,473,305 24,831,384 25,573,864
134,900,571 140,931,345 150,256,331 164,272,764 183,492,104 207,811,122 247,687,498 292,578,174 338,260,144 383,681,430
8. 4 Cash-flow Statement
Year - I Year - II Year - III Year - IV Year - V Year - VI Year - VII Year - VIII Year - IX Year - X
RUPEES RUPEES RUPEES RUPEES RUPEES RUPEES RUPEES RUPEES RUPEES RUPEES
Profit before Taxation 21,914,650 18,214,700 23,900,328 29,957,312 36,603,472 43,317,126 50,165,169 56,514,981 59,098,521 59,571,742
Provision for WPPF 1,153,403 958,668 1,257,912 1,576,701 1,926,499 2,279,849 2,640,272 2,974,473 3,110,448 3,135,355
Depreciation 9,223,285 8,248,223 7,383,997 6,616,719 5,934,456 5,326,924 4,785,230 4,301,659 3,869,501 3,482,901
32,291,337 27,421,591 32,542,237 38,150,731 44,464,426 50,923,899 57,590,671 63,791,112 66,078,471 66,189,998
Stock in Trade (2,172,002) (229,601) (145,583) (164,369) (231,068) (223,887) (251,768) (283,643) (303,297) (330,345)
Stores & Spares (1,224,720) (125,534) (138,401) (152,587) (168,227) (185,471) (204,481) (225,441) (160,094) (129,248)
Advances, Deposits & (1,549,768) (107,327) (122,427) (138,494) (193,154) (177,958) (198,344) (220,458) (227,190) (242,382)
Other Receivables
Accounts Receivable (8,388,493) (859,821) (947,952) (1,045,117) (1,152,242) (1,270,347) (1,400,557) (1,544,114) (1,096,536) (885,259)
Accrued Charges 2,403,888 240,522 264,587 291,061 320,184 352,220 387,463 426,231 465,041 509,513
Mark - up payable - 3,144,586 (698,797) (698,797) (698,797) (698,797) (349,398) 0 0 0
Sales Tax Payable 850,500 87,176 96,112 105,963 116,825 128,799 142,001 156,556 111,177 89,755
(10,080,596) 2,150,002 (1,692,460) (1,802,340) (2,006,479) (2,075,440) (1,875,086) (1,690,870) (1,210,900) (987,966)
Cash -other Sources
Sponsors' Equity 49,914,065 - - - - - - - - -
Debt Financing 49,914,065
Long Term Deposits : 8,750,000 - - - - - - - - -
108,578,131 - - - - - - - - -
Total Sources 130,788,872 29,571,593 30,849,776 36,348,391 42,457,947 48,848,459 55,715,586 62,100,243 64,867,571 65,202,032
Applications:
Fixed Assets 96,379,600 - - - - - - - - -
WPPF Paid - 1,153,403 958,668 1,257,912 1,576,701 1,926,499 2,279,849 2,640,272 2,974,473 3,110,448
Long Term Deposits 3,417,120
Re -Payment of Loan - 9,982,813 9,982,813 9,982,813 9,982,813 9,982,813 - - - -
Taxation - 5,478,662 4,553,675 5,975,082 7,489,328 9,150,868 10,829,282 12,541,292 14,128,745 14,774,630
99,796,720 16,614,878 15,495,157 17,215,807 19,048,842 21,060,179 13,109,130 15,181,564 17,103,218 17,885,079
Cash 30,992,152 12,956,715 15,354,620 19,132,584 23,409,105 27,788,280 42,606,455 46,918,678 47,764,354 47,316,954
Increase/(Decrease)
Opening Balance - 30,992,152 43,948,868 59,303,487 78,436,072 101,845,177 129,633,457 172,239,912 219,158,590 266,922,944
Closing Balance 30,992,152 43,948,868 59,303,487 78,436,072 101,845,177 129,633,457 172,239,912 219,158,590 266,922,944 314,239,897
9 KEY ASSUMPTIONS