Project Financial Management

Group Assignment

PROJECT FINANCING

Submitted by:

GROUP 1

Syed Ayaz Ahmed Bukhari 15479 (Rationale)

Rana Ahmad Aamir 15233 (Summary Diagram)

Muhammad Shoaib 14885 (Evaluation)

Arfa Afzal 14176 (Financing Structure)

Sadia Shamshad 15291 (Description)

MS Project Management – Fall 2019

PROJECT DESCRIPTION
Project Pavers Manufacturing Plant
Location Jouharabad, Khushab
Province Punjab, Pakistan
Project Type Automatic Manufacturing Plant
Purpose To supply pavers and curbstones to construction of new cement
plant
Estimated Cost (Rs., Million) 80
Capacity 7500 Square Feet per 8 hours shift
Sponsor Pioneer Cement Limited

MAJOR PARTIES INVOLVED

Following major parties were involved;
1. Pioneer Cement Limited – Sponsor & Off Taker for new line 3
2. Bannu Mukhtar & Descon Engineering Limited – Off Taker
3. Local Contractor – Construction of plant shed and ware house
4. Chinese Company – Plant Supplier and installation advisor
5. Operations – Staff and skilled labor
RATIONALE FOR CONDUCTING THE PROJECT & SPONSOR’S REQUIREMENTS
Main rationale for conducting this project by Pioneer Cement Limited was to use this plant as an
SPE and utilize pavers and curbstones manufactured at this plant at its new line 3 where there
was approximately 600,000 Sq. Ft requirement of pavers and around 200,000 Running Feet
requirement of curbstones. Another purpose was to make and provide quality products using
fresh cement from adjacent cement plant already run by PCL.
Another requirement was to fulfill need of curbstones, blocks and pavers required by contractors
i.e. Bannu Mukhtar and Descon for construction of offices, staff hostels, officer’s colony and
gymnasium in cement plant vicinity.
Later on the project can be used to sell pavers, curbstones and blocks to open market and earn
profit.
PROJECT FINANCING STRUCTURE
For establishing and installation of the Paver manufacturing plant, fully automatic plant was
imported of a Chinese Brand from China. For this purpose, Owners of Pioneer Cement Limited
(PCL) were the investors on equity basis. Whereas for the working capital, local banks were
approached for 5 years project financing debt at an agreed KIBOR and interest rate and fixed
return after 3rd year till 5th year.
Initially the project had an OffTake Contract with two of the contractors working at the
construction of access to new line 3 i.e. Descon and new officer’s colony with new hostels,
offices and gymnasium done by Bannu Mukhtar. An agreement was made with these two parties
that Pioneer Cement Limited will supply them pavers, curbstones and block as and when
required till completion of these structures. Cost plus profit margin was set with them dependent
of cost variations in raw materials and other variable costs like electricity, fuel and lubrication
etc.
Afterwards it was intended to sell these products in open market as a new business avenue.
Currently, Pioneer Cement limited has started selling its manufactured products from its paver
plant to other clients on the basis of cost plus percentage margin. Product catalogue is given
below;

Units Depth Item Description Color

Citi Paver 50mm thick (198mm x
50mm Grey & Red
98mm)
Citi Paver 60mm thick (198mm x
60mm Grey & Red
98mm)
Hi-Lock Paver 60mm thick (201mm
60mm Grey & Red
x 135mm)
Uni-Lock Paver 60mm thick (220mm
SFT 60mm Grey & Red
x 110mm)
Citi Paver 80mm thick (198mm x
80mm Grey & Red
98mm)
Uni-Lock Paver 80mm thick (220mm
80mm Grey & Red
x 110mm)
Rectangular Tile 60mm thick
60mm Grey & Red
(300mm x 300mm)
Units Depth Item Description Color
Solid Block
6in Grey
(6in x 8in x 12in)
Hollow Block
6in Grey
(6in x 8in x 16in)
Hollow Block
8in Grey
Nos (8in x 8in x 16in)
8in KeyStone Grey
Curb Stone
14in Grey
(6in x 14in x 12in)
Curb Stone
18in Grey
(6in x 18in x 12in)

MAJOR SUBCONTRACTS
Two major subcontracts were involved in the procedure. One being the local contractor party for
the construction of foundations and warehouse shed. Second party was the Chinese engineers
 arrived for commissioning and post guarantee testing of the automatic plant supplied by their
company and also for operating and maintenance contract. Another subcontract other the above
two is the raw material supplier that is used for the manufacturing of pavers and other products.
SUMMARY DIAGRAM

PCL Owners - Investor Local Banks – Lender

Equity Project Finance Project Finance Debt

Debt
Pakistan Environment Bannu Mukhtar &
Protection Agency Plant Financing Working Capital Financing Descon

Operating Lisence OffTake Agreement

PCL Paver Plant - SPE

Sub-Contracts

Construction Contract Operation & Supply Contract

Maintenance Contract

Local Contractor Chinese Engineers Raw Materials Supplier

EVALUATION
Since the project has finished in last August and just started its sales in January 2020 therefore
there is no report being published yet by the company to show its real time performance.
However been in open market its products are penetrating into construction and infrastructure
projects where there is pavers and curbstones requirement. Famous competitor brands like Izhar
and Bannu Mukhtar are benchmarked for pricing and quality.
As the plant location is somewhere towards north of Punjab therefore its suitable markets are
Sargodha, Mianwali, Faisalabad, Khushab, Kalar Kahar, Chakwal, Chashma etc. To far off
markets and big cities like Lahore, Islamabad, Multan and Peshawar etc its difficult to grow it
business due to excessive freight charges.
However upon testing from a third party i.e. University of Engineering & Technology, Lahore,
its paver products have shown amazing compressive strengths of up to 8500 Psi that can be used
as it Unique Selling Point.
Attached are the company’s brochure and a test report from UET Lahore.