Project Proposal for the Establishment of Pulp and Paper

Manufacturing Factory

Project Location: Managasha Town

Promoter:Abreham Genore Ayano (AGA)

Marcha 2014
Addis Ababa

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Table of Contents
I. SUMMARY...........................................................................................................................4
1. Introduction.................................................................................................................................5
1.1 Background Information.....................................................................................................5
1.2 Overview of Ethiopia’s Paper Industry...............................................................................8
2. The Project Area.......................................................................................................................11
3. PROJECT DESCRIPTION AND APPLICATION................................................................13
3.1 Description of the Project.................................................................................................13
3.2 Objectives of the Project...................................................................................................13
4. MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY...............................14
A. Market Study.........................................................................................................................14
1. Past supply and Present Demand..................................................................................14
2. PAST PAPER SUPPLY IN TONNES..............................................................................14
3. Projected Demand...........................................................................................................15
4. Pricing and Distribution...................................................................................................15
5. Export and Domestic Market Share..................................................................................15
6. PLANT CAPACITY AND PRODUCTION PROGRAMME..........................................16
1. Plant Capacity......................................................................................................................16
2. Production Program..........................................................................................................16
5. MATERIALS AND INPUTS..................................................................................................16
a. MATERIALS.......................................................................................................................16
b. UTILITIES..........................................................................................................................17
6. TECHNOLOGY AND ENGINEERING...............................................................................18
a. TECHNOLOGY..................................................................................................................18
1. Production Process..........................................................................................................18
2. Source Of Technology.....................................................................................................19
b. ENGINEERING..................................................................................................................19
1. Machinery And Equipment................................................................................................19
2. Land, Building and Civil Works........................................................................................20
7. Organization and Management.................................................................................................21
7.1 Organizational Structure...................................................................................................21
7.2 Man Power Requirements with Qualifications..................................................................21
7.3 Skilled and Unskilled Workers.................................................................................................23
7.4 Permanent and Temporary Workers.......................................................................................23
7.5 TRAINING REQUIREMENT.............................................................................................23

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8. FINANCIAL ANALYSIS.......................................................................................................24
A. TOTAL INITIAL INVESTMENT COST..........................................................................25
B. Fixed Investment Cost...........................................................................................................25
C. PRODUCTION COST........................................................................................................26
D. Initial Working Capital Requirements...................................................................................26
9. FINANCIAL EVALUATION and Forecast............................................................................27
A. Income Statements..........................................................................................................27
B. Financial Rate of Return.......................................................................................................28
C. Cash Flow Statements...........................................................................................................29
D. ECONOMIC and Social BENEFITS................................................................................29
10. Environmental Impact and Management Plan of the Project.................................................30
11. Land Use Plan and Project Implementation Activities Plan..................................................33
11.1 Land Use Plan....................................................................................................................33
11.2 Project Implementation Schedule/Activities Plan.............................................................34
12. Annexes................................................................................................................................35
1. Loan Repayment schedule.................................................................................................35
2. Balance sheet of the Project..............................................................................................35

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I. SUMMARY
1. Project Background

 Title of the Project: Project Proposal for the Establishment of Pulp and Paper Manufacturing Factory

 Owner of the Project: Abreham Genore Ayano (AGA)

 Project Location: Managasha Town

2. Total Investment Cost of the Project

 Fixed Investment Cost 39,540,000.00

 Working Capital 20,460,000.00

 Total Cost of the Project 60,000,000.00

3. Financial Sources of the Project

 Owner Equity (30%) 18,000,000.00

 Bank Loan(70%) 42,000,000.00

 Total 60,000,000.00

4. Estimated Annual Net Profit of the project

 Over Ethiopian Birr 3 Million

5. Employment Opportunity of the Project

 At Total of 550 of which 250 Permanent and more than 300 Temporary

employment opportunity

6. Land Required for this Investment 10. 000 M2

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 1. Introduction

1.1 Background Information

Ethiopia as a developing country has significantly very low paper and paper board
consumption per capita of 0.43 kilogram/person/year when compared with the world
average of 54.48 kilogram/person/year in 2005 (WRI, 2005). As Ethiopian economy is
currently growing consistently with significant amount (11.5% to the average) for the last
five years, the per capita consumption of paper (currently 1kg/person/year) is expected to be
changed significantly. Besides Ethiopia is targeting to reach to the level of economy of
those middle income countries in the coming 20 years there by increasing the per capita
consumption of paper to about 83.13kg/person/year (the current annual growth rate of per
capita consumption is expected to be changed from 14.36% to 24.47% in order to reach the
per capita consumption of paper for middle income countries that is 83.13%).
Further more, the ever increase in price of raw material (pulp) for paper manufacturing and
the presence of no one single pulp mill in the country seems to blur the vision to come to
the level of the per capita consumption of the middle income countries and there by hinders
its economy to grow to the desired level after 10 years. Therefore, in order for the vision to
come to reality the industry needs not only to fill the gap between demand and supply of
paper and paper products for local consumption but also needs to play a significant role in
the export sector and generates foreign currency and keeps the trade balance healthy. In
order to do this, Ethiopia, as a strategy towards its vision needs to secure the raw material
for paper and paper products manufacturing.
According to the Privatization and Public Enterprises Supervising Agency /PPESA/, with
the development of market economy, from 1993 to 2008, the amount of paper and paper
board consumption in Ethiopia increased from nearly 28,000 to 90,212 tons to an average
annual growth rate of 14.36 percent.
In 2009, paper and paper board consumption in Ethiopia reached 125,742 tones from which
the portion that is produced locally is only 11,103 tones or 8.9 percent. The remaining
balance is expected to have been imported from Europe or USA.

By 2020 Ethiopia is expected to be categorized under middle income countries where total
paper and paper board consumption at that time is expected to reach 1,842,944 tones. From
this total amount local production of paper is assumed to cover only 0.81 percent of the
consumption if this trend is not changed. The balance is expected to be covered by
importation. During that time, with the development of the national economy, the

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requirement for paper and paper board will increase and per capita consumption of paper is
expected to reach 15kg per head in the country, which is considered to be very low when
compared to the per capita consumption of middle income countries which at that same time
is expected to reach 80.17 kg per head per year (PPESA, 2010).
On the other hand the amount of consumption surpasses that of production in paper and
paper board. From 2005 to 2009 for instance, the average annual production of paper and
paper board was 11,175 tons per year and the average annual consumption was 106,143
tons so that the deficit was 94,968 tons (some 89.5 percent of consumption). This low local
productivity of the sector is mainly due to the following reasons:
 Wearing and tearing of paper manufacturing machines;

 Working capital constraints;

 Shortage in skilled labor power;

 Being inefficient and less competitive with respect to price and quality of paper when
compared with the imported ones; and

 Inadequate supply of raw material locally and the requirement of huge amount of foreign
currency to purchase from abroad (PPESA, 2010).

Despite the above mentioned limitations paper consumption seems to grow in line with the
growth in the economy of the country. Ethiopia is currently growing at an annual average
rate of 11.5% and if it continues with this trend, by the year 2020, where Ethiopia is
expected to come to the level of the economy of middle income countries, the overall
economic growth of the country is expected to show a significant increment. As most paper
is used to facilitate some economic activity, having a larger economy, all else being equal,
demands a higher level of paper use.
According to the process and rate of paper industry development since the reform and the
development of national economy, it is estimated that the demand of paper and paper board
will be predicted to be 188,300 thousand tones in 2010 and will reach 322,069 thousand
tons by 2015 (PPESA,2010).

This growth in consumption is attributed to the prospective economic growth of the country
which further is facilitated by:
 Establishment of democratic state in the country;

 Favorable investment conditions;

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 Development of the education sector, and

 The development of the free press (PPESA, 2010).

Due to such a conducive environment for the expansion of the sector, paper demand seems
to grow constantly while the local supply is constrained by so many internal and external
factors. Therefore, in order to balance the local supply and demand extra effort must be
made so that local production of paper and paper board is enhanced. According to PPESA
(2010), this can be done through:
 Motivating economically local manufacturers and improving import substitutions;

 Give protections to the local market and enhancing competitions among them until
demand balances supply;

 Producing major input chemicals including pulp locally, and

 Create market opportunity for their products.

Doing this not only increases the local production of paper and paper board but also creates
a conducive environment for foreign direct investment where foreign investors can invest in
Ethiopia which is considered to be quite vital in the transfer of technology, management
know how and efficient marketing activities and strategies.
In contrast to the highly growing demand of paper and paper products, paper production in
Ethiopia is at its infant stage where there are only three paper mills producing an annual out
put of 15 - 25 thousand tones in aggregate.
The major reason why there are no additional paper mills with better capacity in the country
is estimated to be the huge capital investment that paper mills normally require and the
significantly high cost of raw material that is imported from different countries of the world
(PPESA, 2010)

These makes the local production of paper inefficient and less competitive when compared
to other sectors in the industry, which significantly affects the overall economic growth of
the country, keeping the per capita consumption of paper for the country well below 1 kg
per head per year.
On the other hand the intensive expansion and new green field investments in the sugar
industry in the country, now a- days, seems to provide a potential raw material for pulp and
paper manufacturing. Bagasse, which is the waste material left after sugar cane is crushed

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and squeezed in the sugar mills to extract the juice is used as a source of raw material for
pulp manufacturing in many countries of the world.
Even though producing bagasse pulp which is a raw material for pulp and paper
manufacturing is new experience in Ethiopia, it is a common and feasible practice in the
countries such as Brazil, India, China, USA, Thailand, Australia and South Africa. Studies
showed that using bagasse for pulp production is not only economically viable but also it is
a sustainable alternative to forest products where old growth forests had been cut down for
pulp production traditionally (Rainey, 2009).
Further more, the technical-economic relationships which have led to the predominance of
wood fibers in many countries do not apply every where. Non wood materials are used in
many parts of the world where pulping technology is less advanced, operations are
relatively small scale, the discharge of effluents is tolerated (even though of high
environmental impact), and where wood is relatively scarce (Rainey & Clark, 2004).
According to these authors, non wood fibers are the dominant feedstock in China and India,
and world wide, about 10% of paper production is made from bagasse, wheat straw, cotton,
hemp, flax, and other materials. Indeed non wood pulping capacity may be increasing
further than wood pulping capacity, Rainey and Clark (2004), concluded.

1.2 Overview of Ethiopia’s Paper Industry

The Ethiopian paper and packing industry which is mainly comprised of printing, paper
converting, paper production and packaging is one of the sectors whose growth is at a fairly
early stage and expected to have good future prospects of development. However, the
presence of some internal and external constraints will be expected to challenge and hinder
its development from the fast growth need of the country.
According to the information obtained from Ethiopian Investment Agency, the total
numbers of investors that have received their investment license to invest in the sector for
the last 17 years are 534 with total capital of Eth. Birr 2,911,755, 000.00. Among these
investors, those who are on operation are 137 and those who are under construction are 59
and the rest 338 (63%) are not yet ready to invest in the sector. With increasing imports to
meet the ever growing demand of paper and paper products, the domestic production
remains nearly constant (about 10%) and expected to decrease gradually as demand
increases unless new local producers come to the industry.

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Table 1.1: Investors Registered to Invest in the Pulp and Paper, Printing and Packaging
Sectors for the Period of 1992-2009.

Source: Privatization and Public Enterprises Supervising Agency /PPESA/, 2010.

As it can be seen from the table above, no one investor has started construction yet, even
though 4 have been registered to invest in the pulp and paper sector. This might be
attributed to the huge capital investment requirement that the pulp and paper mill requires
and the second, probably, the major reasons is the scarce and short supply of raw material
for pulp and paper manufacturing.

On the other hand the printing sector seems promising to the investors; this is because
87.8% of those investors who are under construction and operational have invested in this
sector. Again this might be attributed to the requirement of relatively low capital investment
for printing machines, the sporadic expansion and development of the education sector in
relation with text book printing and the possibility of importing paper and paper products of
relatively inferior quality with relatively cheap price from abroad.
Following the massive expansion of the education sector and the double digit economic
growth of the country for the last five years, the paper, printing and packaging industry is
expected to grow with significant percentage if all the constraints and obstacles with in the
sector are going to be alleviated. In order for the sector to grow as required, the following
opportunities must be exploited:
 Free market economic policy of the country;

 Double digit economic development of the country has helped to improve the disposable
income for the citizens of the country and improved purchasing power (or consumption);

 Massive expansion of the education sector;

 Urbanization and ever growing demand of paper, printing and packaging; and

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 Availability of small scale efficient technologies on the market (PPESA, 2006).
The sector is also expected to address the following threats that might hinder it to grow to
the desired level.
 Technology limitations;

 Raw material shortage;

 Foreign currency problem;

 Working capital constraints; and

 Sharp print quality requirements by donors and a trend to outsource text book publishing
to the foreigners.
Thus, in order for the sector to grow as required and to attain the goals and vision of the
country, that is, to grow the economy to the level of middle income countries, this import
dominated sector needs to address the threats that the sector encounters and exploit the
opportunities that help to achieve the Millennium Development Goal of the country. Being
a country comprising 75 million in-habitants with per capita paper consumptions of nearly 1
kg, there will be a potential for the sector to grow to the desired level. More over there is
huge gap between demand and supply with only three paper mills which show-cased an
ample scope for growth in the paper industry (PPESA, 2010).

Finally, this industry which is characterized by slow growth, fairly unattractive to investors,
import dominated (nearly only 10% of the total demand is currently covered by local
producers), with a huge potential to grow needs a huge effort both from government and
other stakeholders to keep it in the development track, so that the sector contributes its own
to the overall economic development of the country.

The researcher, being, an employee in one of the government owned paper producing
companies, strives to make his own contribution, specifically, by supporting the effort in
searching for the source of raw material to make pulp and paper. Bagasse which is the
fibrous residue that remains as a waste product from the sugar milling process (Singh, 2004)
is the prime candidate to be studied as an alternative source of raw material for pulp
manufacturing and thus is the major concern of the researcher through out the research
endeavor.

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 2. The Project Area
2.1 Physical set up of the town

The project is planned to be developed in Managasha Kolobo town of Oromia region which is
located at 25km distance on Finfinne-Asosa main root/road at immediate boundary of Burayyu
town. Mannagasha Kolobo is located in Oromia special zone surrounding Finfinne. Although, it is
one of those towns of Oromia region in which major economic activities carried out. The town is
surrounded by the known mountain called mountain Subba which is well known by its natural forest
coverage.
2.2 Climatic Condition of the town
Climatically, the town is classified under wiena-Dega zone that has the same general climatological
characteristics as that of Addis Ababa. Globally it is a part of tropical humid climatic region, which
is characterized by warm temperature and high rainfall. The broad climatic characteristics of the
study area, with its alternating wet and dry seasons, are determined largely by the annual movements
across the country of equatorial low pressure zones caused by the convergence of dry north-easterly
winds with moist winds of the south-easterly or south-westerly origin.

Temperature:- The temperature of Menagesha area lay in the temperate climatic zone with a
temperature range of 12.70C to 24.40C.

Rainfall:- In general, the rainfall distribution of the study area and neighbors are more or less
similar to that of the Ethiopian central plateau. The temporal rainfall distribution indicates that the
occurrence of two main seasons, the dry and wet seasons. This high rain frequency and capacity of
the areas shows the availability of high potential water at the surrounding when we come to our
project which is to be engaged on water mining and packing activity, it shows risk to produce with
its all capacity.

3. Economic Activities and Infrastructure availability

3.1 Economic Activities

It is a bare fact that elsewhere in the country rural dwellers depended largely on agricultural
activities whereas urban dwellers are engaged in commercial activities as their primary economic
base and agro-based activities as a supplementary and secondary economic base.

Therefore, the overall development of commercial and industrial activities that has a great role to
contribute to construction and related activities in the region, the existing need on the town for
residential, commercial, industrial and the like with inadequate supply to support these all activities
that support these development activities, the town has attracted the promoters and laid down bases
for this project to be promoted.

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3.2 Infrastructure Availabilities

The social and economic infrastructure availabilities in the town include schools up to high school,
health institutions of different levels. With respect to physical infrastructures; there is a 24 hours
hydroelectric power, well developed transport services in similar standard with the Federal capital
Finfinne city and pure potable water supply services with different modern communication facilities
in the town.

Despite the fact that there such market access with investment activities in the project area in the
town, there is no any well-developed service rendering activities that accommodate the ever
increasing demand of service seekers in the town where the project is to be developed.

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3. PROJECT DESCRIPTION AND APPLICATION

3.1 Description of the Project

Paper is used for writing and printing, for wrapping and packaging, and a variety of other
applications ranging from kitchen towels to the manufacture of building materials. In
modern times, its production in large quantities has been a significant factor in the
increase in literacy and the raising of educational levels of people throughout the world.
The most commonly used paper types are stationary paper (i.e. printing and writing),
news print, wrapping & packaging, and paper card. Small scale paper making is defined
as one having a capacity of less than 30 tonnes of paper per day; this also includes hand-
made paper.

3.2 Objectives of the Project

The general objectives of this project are as any business company to get return on
investment in the Form of net profit. Thus the General objectives of this project will be.

 To be profitable on return on investment

 To contribute for the country economic Development

 To contribute by filling the Demand and supply Gap for this product in our country

 Contribute for the production of Products that are import substitute

 To create employment opportunity for the citizens

 To Contribute for foreign earnings for our country by exporting some parts of the
project product to other countries

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4. MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY

A. Market Study

1. Past supply and Present Demand

Paper has become an important necessity of our day to day life. Modern life depends on
paper and millions of tonnes of it are made and used each year. The range of possible
uses of paper is limitless and new ways of using it are being devised daily. We use paper
for news prints, magazines, writing, printing, packaging, sanitary purpose and household
uses. Books, exercise books, report cards, receipts, envelops greeting cards,
calanders, diaries, wall papers, toilet tissue, towels are a few among the usages of paper.
The supply of paper in Ethiopia is dominated by imported products. The only paper
producing factory in Ethiopia is Ethiopian Pulp and Paper Share Company which is
located at Wonjj. This factory has a production capacity of 8,000-10,000 tonnes,
annually. Due to the limited production capacity of the country's sole producer of paper,
the country imports a large quantity of paper from oversees (see Table 3.1).

2. PAST PAPER SUPPLY IN TONNES

Year Domestic Import Total
1988 7,489 20,313 27,802
1999 10,420 160,612 171,032
2000 5,143 413,432 418,565
2001 6,144 100,302 106,446
2002 7,719 32,216 39,935
2003 6,683 35,926 42,609
Average 7,266 127,132 134,398

As can be seen from Table 3.1, the 1998/2003 average annual domestic production of
paper was 7,266 tonnes while in the same period 127,132 tonnes of paper have been
imported which means the average total supply of paper during the period under
consideration was 134,398 tonnes per annum, of which only about 5% was locally
produced. Supply of paper has shown a leap in the three years (1999-2001) and returns
back to the under 50, 000 tonnes level in 2002. Excluding the leap years, the average
annual total supply remains 36,782 tonnes with an annual growth rate of 8.8%. Applying
this annual growth rate, the current effective demand for paper is estimated at 46, 359
tonnes.

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3. Projected Demand
Since modern life needs usage of paper every day, the demand for paper is increasing
with population and modernization. Changes in life style, growth in standard of living,
the service and industrial sector and educational coverage will contribute to the growth in
demand for paper. In forecasting the demand for paper, therefore, GDP growth rate
attained in 1999-2004 i.e, 3.76% is applied. The projected demand is presented in Table
3.2.Table 3.2PROJECTED DEMAND FOR PAPER
Year Demand (Tonnes)
2005 48,102
2006 49,911
2007 51,787
2008 53,735
2009 55,755
2010 57,859
2011 60,027
2012 62,284
2013 65,625
2014 67,055

4. Pricing and Distribution

As a new entrant to the market, the project under study will have an advantage of using
latest technology as against the existing domestic producer which will enable to produce
at a lesser cost and better quality. The recommended price for the envisaged project is
Birr 4 per kg. The product can be distributed by establishing own distribution outlets in
strategic towns or by using hired or commissioned agents.

5. Export and Domestic Market Share

S.N Items Export Domestic Total

1 Pulp 50% 50% 100%

2 Paper 50% 50% 100%

3 Others 80% 20% 100%

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 6. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity
From the technical point of view, a small-scale paper mill is one, which has a capacity of
less than 30 tonnes per day. Accordingly, considering the demand projections worked
out in the market study section, it is proposed that a plant with a daily capacity of
33.3 tones per day is recommended. This is equivalent to 10,000 tonnes per year.
Production capacity is based on a schedule of 300 working days per annum and 3 shifts
of eight hours per day.

2. Production Program
The envisaged production program is given in Table 3.4. The schedule is worked out in
consideration of the time required for gradual build-up in labour productivity and fine-
tuning of machinery. Production will start at 75% of plant capacity in the first year of
rd
operation and reaches full-gear in the 3 year of operation and then after.

Table 3.4 PRODUCTION PROGRAMME

Year 1 2 3-10
Capacity Utilization [%] 75 85 100
Production (tonnes) 5,625 6,375 7,500

5. MATERIALS AND INPUTS

a. MATERIALS
In tropical developing countries, where wood is often in short supply there are a number
of sources of fiber. These include straw (e.g. from wheat, barley or rice), bagasse, maize
stalks, bamboo, cotton cuttings, lint and fluff, rags (from cotton material), hemp and sisal
from old ropes and jute. In the Most of Ethiopian region, maize stalks and bamboo are
believed to be easily obtainable, especially through commercial farming. In addition if
proper maintenance is applied, the existing bamboo forests could be utilized as a source
of raw material.
Chemicals are also required in the paper making process. These include caustic soda,
lime, ammonia- & calcium sulphate , chlorine, hypochlorite, alum, starch, china clay and
talc.
The raw materials required for the envisaged small scale paper plant and corresponding
estimated cost are indicated in Table 4.1.

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Table 4.1 ANNUAL MATERIALS REQUIREMENTS AND COST (IN TONNES)

Sr.No. Description Unit Price Cost ('000 Birr)

Qty. (Birr) L.C F.C Total
1 * 18,750 200 3,750.00 3,750.00
Wood
2 NaOH 2,010 4,360 3,067.26 5696.34 8,763.6
3 Cl2 375 2,270 297.94 553.31 851.25
4 CaO 101.25 1,200 42.53 78.98 121.5
Grand Total 7,157.73 6,328.63 13,486.35

b. UTILITIES

Electricity, water and steam are the three major utilities required by the plant. Steam is
supposed to be generated by electric boilers; hence, its cost to the project are included in
electricity and water costs. Table 4.2 shows annual requirements and associated costs at
full production capacity. Annual cost of utilities, at the proposed full production capacity,
is estimated at Birr 4,642,500.

Table 4.2 ANNUAL UTILITIES REQUIREMENT AND COST

Sr. Description Unit of Qty. Unit Price Total Cost

1 Electricity kWh 10,500,000 0.335 3,517.50

2 Water 3 750,000 1.5 1,125
m
3 Steam Tonne 75,000 - -
Grand Total 4,642.50

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6. TECHNOLOGY AND ENGINEERING

a. TECHNOLOGY

1. Production Process
The process of making paper is based on the fact that wet cellulose fibers bind together
when dried under restraint. The processing of paper usually involves the initial separation
of the cellulose fibers to form a wet pulp, some form of treatment, such as beating and
refining, while in the pulped state, to enhance the quality of the final product, then
forming of the sheet paper by hand molding or by paper making machine, and drying.
Some further processing is often carried out before or during drying to acquire the desired
finish. The stages involved in transforming raw materials into paper in a small scale mill
are the following operations:
• Delivery and preparation,
• Bleaching and refining,
• Sheet forming,
• Coating, drying & calendaring, and
• Cutting & packing.
Effluent treatment and disposal is another topic, which needs careful attention. The
effluent from a paper mill can contain different chemical species, which, if discharged
directly into the environment, would cause untold damage. In medium and large-scale
plants specialized recovery equipment is used to reclaim chemicals for reuse or for
incineration to provide energy. This is not cost effective in smaller plants and so some
form of treatment and/or disposal is required. Biological treatment plants, such as the
anaerobic digester, are sometimes used to treat the effluent. This method has the added
benefit of producing methane through digestion of the organic matter in the effluent,
which can be used to provide as much as 30 % of the mill's energy requirement.
The remaining sludge can, then, be disposed off on the land.

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 2 . Source Of Technology
The manufacturing technology and machinery for small scale paper production can be
obtained from renowned suppliers in Europe and Asia. The following company can
be contacted for the supply of machinery and knowhow:
Small Industries Research Institute
(SIRI), PO Box 2106, 4/43 Roop Nagar,
Delhi 110 007,
India. Tel: +91
11291 81 17.

b. ENGINEERING

1. Machinery And Equipment

The list of machinery and equipment required for a small scale paper making plant
is given in Table 5.1. It should be understood that a pulp & paper mill is generally
capital intensive. On this basis, total cost of machinery and equipment is estimated at 20
million, out of which Birr 13 million is required in foreign currency.
Table 5.1 LIST OF MACHINERY AND EQUIPMENT

S.N Description No. (Set)

1 Pulper 1
2 Breaker 1
3 Beater / refiner 1
4 Washer 1
5 Refining equipment 1
6 De-flaking equipment 1
7 Screen 1
8 Cleaners 1
9 Four drinier machine 1
10 Head box or flow-box 1
11 Press 1
12 Dryer 1
13 Reeling, winding and sheeting equipment, 1
14 Handling equipment 1
15 Size press Machine 1
16 Cutting machine 1
17 Laboratory equipment Set
18 Auxiliary equipment Set
19 Boiler 1

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2. Land, Building and Civil Works
2 2
Total land requirement of the project is estimated at 30,000m out of which 10,000m
is built-up area. Cost of building construction is estimated at about Birr 4.5 million.
Total land lease cost, for a period of 80 years is estimated at about Birr 1,5000.00 Thus,
the total investment cost of land, building and civil works assuming that the total land
lease cost will be paid in advance will be Birr 5.9 million.

3. Proposed Location
It is highly recommendable (and also sustainable) to base a pulp -& paper mill on
commercial forests, i.e. trees that are planted on purpose with modern re-forestation
schemes.

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 7. Organization and Management

7.1 Organizational Structure

The organizational structure of the company will include all General assembly, Board of
directors, General Manager and Production Department chief technical head and Technical
qualified staffs, Administrative and Finance section, Marketing Section, and Legal and
Audit department section. The General Manager is responsible for the General assembly
and board of director while All technical departments and supportive staffs and Legal and
Audit section is directly responsible for the General Manger. The Organizational structure
of the company is as follows.

General Manager

Auditor Legal Service

Section

Raw Material Supply Paper Manufacturing Dep’t

Finished Product and
Department
Sales Department

Administrative and Finance

7.2 Man Power Requirements with Qualifications

The plant requires both direct and indirect manpower. The direct manpower consists of
designers, operators of workshop equipment, mechanics, welders, paints. Laborers are
engaged in manufacturing of the products executed by production & technical departments.
The administrative activities are executed by indirect workers that include plant manager,
executive secretary, heads of finance and administrations, and personnel officer, accountant
and other support giving personnel. The manpower list and the corresponding monthly and
annual salaries including fringe benefits are given in Table 7.1 below.

21
Table 7.1 MANPOWER REQUIREMENT AND ANNUAL LABOR COSTS

Sr. Description Req. Monthly Salary Annual Salary

1. General Manager 1 13,000 156,000

2. Production & Technical Manager 4 7,500 90,000
3. Pulp Mill Division Head 4 5,000 60,000
4. Paper Mill Division Head 5 5,000 60,000
5. Finance & Administration Manager 5 5,500 66,000
6. Commercial Manager 1 5,500 66,000
7. Accountant 5 2,500 30,000
8. Sales Person 10 2,500 30,000
9. Purchaser 5 2,000 24,000
10. Clerk 3 2,300 27,600
11. Secretary 6 2,700 32,400
12. Quality Control Manager 6 5,000 60,000
13. Production Foreman 10 14,000 168,000
14. Chemist 6 3,000 36,000
15. Operator 40 40,000 480,000
16. Mechanic 13 2,700 32,400
17. Electrician 13 2,700 32,400
18. Unskilled Labour 85 14,000 168,000
19. Guard 15 1,000 12,000
20. Diver and others 7 5,000 60,000
Total 250 140900 1,690,800
Worker’s Benefit = 25% of Basic Salary 35225 422,700
Grand Total 176125 2,113,500

Note; All the above manpower assignment will be subjected to change . Because it is
estimation and will change during production time.

22
 7.3 Skilled and Unskilled Workers

S.N Description Quantity Price Total

  Skilled 100 7500 750,000.00

  Semi-Skilled 100 6300 504,000.00

  Unskilled 50 2500 400,000.00

  Total 250   2,113,500

7.4 Permanent and Temporary Workers

Of the overall employment of the company the permanent staff will be 250 and the temporary
employment or casual employment will be 300 in which the overall employment of the company
will be 550

7.5 TRAINING REQUIREMENT

An on-site training program can be arranged for key production, maintenance and quality
control personnel in consultation with the machinery and technology supplier.
Additionally, a training program can be arranged at the Ethiopian Pulp & Paper Share
Company. Cost of training of this nature is estimated at Birr 300,000.

23
8. FINANCIAL ANALYSIS

The financial analysis of the small scale paper making project is based on the data
presented in the previous chapters and the following assumptions:-

Construction period 2 years

Source of finance 30 % equity

70 % loan
Tax holidays 3 years
Bank interest 10.5%
Discounted cash flow 10.5%
Repair and maintenance 5 % of the total plant and machinery

Accounts receivable 30 days

Raw material, local 60 days
Raw material, imported 90 days
Work in progress 1 day
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days

24
 A. TOTAL INITIAL INVESTMENT COST

The total initial investment cost of the project including working capital is estimated at
Birr 34.86 million, of which about 44% will be required in foreign currency. The
breakdown of the total initial investment cost is shown in Table 7.1.

Table 7.1 INITIAL INVESTMENT COST ('000 BIRR)

Sr. Cost Items Foreign Local Total

1 Land - 1,500.00 1,500.00

2. Building and Civil Work - 5,500.00 5,500.00
3. Plant Machinery and Equipment 18,000.00 1,000.00 19,000.00
4. Office Furniture and Equipment - 1,000.00 1,000.00
5. Vehicle - 5,000.00 5,000.00
6. Pre-production Expenditure* 7,540.00 7,540.00
Total Investment cost 18,000.00 21,540.00 39,540.00
7 Working Capital 18,150.00 2,310.00 20,460.00
Grand Total 36,150.00 23,850.00 60,000.00
* Pre-production expenditure include interest during construction (Birr 4.17 million),
training (Birr 300,000), and costs of registration, licensing and formation of the
company including legal fees, commissioning expenses, etc.

B. Fixed Investment Cost

Sr. Cost Items Foreign Local Total

1 Land - 1,500.00 1,500.00

2. Building and Civil Work - 5,500.00 5,500.00
3. Plant Machinery and Equipment 18,000.00 1,000.00 19,000.00
4. Office Furniture and Equipment - 1,000.00 1,000.00
5. Vehicle - 5,000.00 5,000.00
6. Pre-production Expenditure* 7,540.00 7,540.00
Total F i x e d Investment cost 18,000.00 21,540.00 39,540.00

25
 C. PRODUCTION COST

The annual production cost at full operation capacity of the plant is estimated at Birr
23.01 million (see Table 7.2). The material and utility cost accounts for 79 per cent while
repair and maintenance take 1.12 per cent of the production cost.
Table 7.2 ANNUAL PRODUCTION COST ('000 BIRR)
Year
3 4 7 10
Raw Material and Inputs 10,114.8 11,463.4 13,486.5 13,486.5
Labour direct 261.6 296.5 348.8 348.8
Utilities 3,481.9 3,946.1 4,642.6 4,642.6
Maintenance and repair 195.0 221.0 260.0 260.0
Labour overheads 109.0 123.5 145.4 145.4
Administration cost 174.4 197.7 232.6 232.6
Total Operating Costs 14,336.7 16,248.3 19,115.6 19,115.6
Depreciation 2,450.0 2,450.0 2,450.0 2,260.0
Cost of Finance 2,423.1 2,180.8 1,453.9 726.9
Total Production Cost 19,209.8 20,879.1 23,019.7 22,102.5

D. Initial Working Capital Requirements

S.N Description Local Cost Foreign cost Total

1 Raw Materials (3 month) 8,000.00 - 8,000.00
2 Utilities (3 months) 6,000.00 - 6,000.00
3 Wage and Salaries (2 month) 3,000.00 - 3,000.00
4 Others Operating Expense (3months)   2,310.00  
Sub total 17,000.00   17,000.00
5 Contingencies 1,150.00   1,150.00
18,150.00 2,310.00 20,460.00
  Net working capital

9. FINANCIAL EVALUATION and Forecast

26
 A. Income Statements

According to the projected income statement, the project will start generating profit in the
first year of operation. Important ratios such as profit to total sales, net profit to equity
(Return on equity) and net profit plus interest on total investment (return on total
investment) show an increasing trend during the life-time of the project. The income
statement and the other indicators of profitability show that the project is viable.

Projected Income Statement (in Million)

Description
Y1 Y2 Y3 Y4 Y5

Revenue 21.290 21.258 28.693 31.577 31.975

Total Revenue 21.290 21.258 28.693 31.577 31.975

Operating Costs

Salary and Wage 2.911 3.194 3.474 3.090 3.421

Consultancy Fee 0.582 0.639 0.695 0.618 0.684
Uniform & Protective Cloths 0.388 0.426 0.463 0.412 0.456
Stationary & Supplies 0.323 0.355 0.386 0.343 0.380
Audit and Legal Fee 0.129 0.142 0.154 0.137 0.152
Repair and Maintenance 0.776 0.852 0.927 0.824 0.912
Marketing Cost 0.388 0.426 0.463 0.412 0.456
Utilities Cost ( Fuel, Lubricant,
Power, Telephone, Insurance ) 0.970 1.065 1.158 1.030 1.140

Gross Operating Costs 6.468 7.098 7.721 6.866 7.602

Operating income 14.822 14.160 20.972 24.711 24.372

Depreciation 4.200 4.200 4.200 4.200 4.200

Profit before Interest 10.622 9.960 16.772 20.511 20.172

Interest Cost - - - 4.410 4.306

Profit after Interest Cost 10.622 9.960 16.772 16.101 15.866

Cumulative Income 10.622 20.583 37.355 53.456 69.322

27
 B. Financial Rate of Return
1. Break-even Analysis

The break-even point of the project is estimated by using income statement projection.
Be = Fixed Cost = 23 %
Sales – Variable cost

2. Pay -back Period

The investment cost and income statement projection are used to project the pay-back
period. The project's initial investment will be fully recovered within 5 years.
3. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 24 % and the net
present value at 10.5% discount rate is Birr 29.97 million.
Financial Internal Rate of Return (In Million)
Project year
Description Intial Cost Y1 Y2 Y3 Y4 Y5

Benefits
Profit after interest cost 10.622 9.960 16.772 16.101 15.866
Depreciation 4.200 4.200 4.200 4.200 4.200

Total Benefits 14.822 14.160 20.972 20.301 20.066

Costs
Fixed Investments 18.000
Working capital 42.000

Total Cost 60.000 - - - - -

Net Benefit (60.000) 14.822 14.160 20.972 20.301 20.066

Discount Factor @ 12% 1.000

0.893 0.797 0.712 0.636 0.567
NPV @ 12% DF = (60.000) 13.236 11.286 14.932 12.911 11.378
3.743

Discount Factor @ 40%

1.000 0.714 0.510 0.364 0.260 0.186
NPV @ 40% DF =
(25.551) (60.000) 10.583 7.222 7.634 5.278 3.732

28
 C. Cash Flow Statements

Description
Initial Cost Y1 Y2 Y3 Y4 Y5

1. Cash Inflow

Equity inflow 18.000

Loans received 42.000
Depreciation 4.200 4.200 4.200 4.200 4.200
Net profit 10.622 9.960 16.772 16.101 15.866

Total Inflow 60.000 14.822 14.160 20.972 20.301 20.066

2.Cash Out Flow

Fixed Investments 18.000

Initial Working Capital 42.000
Loans Payment - - - 5.398 5.398

Total Out Flow 60.000 - - - 5.398 5.398

Cash flow Surplus/Deficit - 14.822 14.160 20.972 14.903 14.668

(-)
Opening Cash Balance - - 14.822 28.983 49.955 64.858

Closing Cash Balance - 14.822 28.983 49.955 64.858 79.526

D. ECONOMIC and Social BENEFITS

The project can create employment for 75 persons. In addition to supply of the domestic
needs, the project will generate Birr 31.9 million in terms of tax revenue. Moreover, the
Regional Government can collect employment, income tax and sales tax revenue. The
establishment of such factory will have a foreign exchange saving effect to the country by
substituting the current imports.

29
10. Environmental Impact and Management Plan of the Project
Industrialized paper making has an effect on the environment both upstream (where raw
materials are acquired and processed) and downstream (waste-disposal impacts).12
Recycling paper reduces this impact.

Today, 90% of paper pulp is made of wood. Paper production accounts for about 35% of
felled trees,13 and represents 1.2% of the world's total economic output.14 Recycling of
newsprint saves about 1 tonne of wood while recycling 1 tonne (1.1 ton) of printing or
copier paper saves slightly more than 2 tonnes of wood. This is because kraft pulping
requires twice as much wood since it removes lignin to produce higher quality fibers
than mechanical pulping processes. Relating tonnes of paper recycled to the number of
trees not cut is meaningless, since tree size varies tremendously and is the major factor in
how much paper can be made from how many trees.15 Trees raised specifically for pulp
production account for 16% of world pulp production, old growth forests 9% and second-
and third- and more generation forests account for the balance.16 Most pulp mill operators
practice reforestation to ensure a continuing supply of trees. The Forest Stewardship
Council (FSC) certifies paper made from trees harvested according to guidelines meant
to ensure good forestry practices.17 It has been estimated that recycling half the world’s
paper would avoid the harvesting of 20 million acres (80,000 km²) of forestland.18

Energy
Energy consumption is reduced by recycling, although there is some debate concerning the
actual energy savings realized. The EIA claims a 40% reduction in energy when paper is
recycled versus paper made with unrecycled pulp.19 Some calculations show that recycling
one ton of newspaper saves about 4,000 KWh of electricity. This is enough electricity to
power a 3- bedroom European house for an entire year.20 Recycling paper to make pulp
may actually consume more fossil fuels than making new pulp via the kraft process,
however, since these mills generate all of their energy from burning waste wood (bark,
roots) and byproduct lignin.21
Pulp mills producing new mechanical pulp use large amounts of energy; a very rough
estimate of the electrical energy needed is 10,000 megajoules (MJ) per tonne of pulp (2500
kW·h per short ton),22 usually from hydroelectric generating plants.

30
Landfill use
About 35% of municipal solid waste (before recycling) by weight is paper and
paper products.23 Recycling 1 tonne of newspaper eliminates 3 cubic meters of
landfill.24
Incineration of waste paper is usually preferable to landfilling since useful energy is
generated. Organic materials, including paper, decompose in landfills, albeit sometimes
slowly, releasing methane, a potent greenhouse gas. Many larger landfills now collect this
methane for use as a biogas fuel.

Water and air pollution

The US EPA has found that recycling causes 35% less water pollution and 74% less air
pollution.25 Pulp mills can be sources of both air and water pollution, especially if they are
producing bleached pulp. Modern mills produce considerably less pollution than those of a
few decades ago. Recycling paper decreases the demand for virgin pulp and thus reduces
the overall amount of air and water pollution associated with paper manufacture. Recycled
pulp can be bleached with the same chemicals used to bleach virgin pulp, but hydrogen
peroxide and sodium hydrosulfite are the most common bleaching agents. Recycled pulp, or
paper made from it, is known as PCF (process chlorine free) if no chlorine-containing
compounds were used in the recycling process.26

Additional Environmental Benefits27

1) Disposal problems are reduced by using waste paper to produce new paper. For every
ton of paper used for recycling, the savings are:28
• At least 30000 liters of water
• 3000-4000 KWh electricity (enough for an average 3-bedroom house for a year.
• 95% of air pollution
2) Recycling one stack of newspapers about six feet tall saves the life of one tree 35 feet
tall. Recycling approximately one ton saves 17 trees29 Other Social and Economic Benefits.
1) Recycling will help local industries grow and will also bring in more employment.
2) There is also less water usage. This is because most of the energy used in
papermaking is required for the pulping needed to turn wood into paper
3) Using recycled paper reduces the need for primary raw materials
of the electrical energy needed is 10,000 megajoules (MJ) per tonne of pulp (2500

31
 22
kW·h per short ton), usually from hydroelectric generating plants.

Additional Environmental
Benefits
1) Disposal problems are reduced by using waste paper to produce new
28
paper. For every ton of paper used for recycling, the savings are:
• At least 30000 liters of water
• 3000-4000 KWh electricity (enough for an average 3-bedroom house for a
year.
• 95% of air pollution
2) Recycling one stack of newspapers about six feet tall saves the life of one tree
29
35 feet tall. Recycling approximately one ton saves 17 trees

Other Social and Economic

Benefits

1) Recycling will help local industries grow and will also bring in more
employment.
2) There is also less water usage. This is because most of the energy
used in papermaking is required for the pulping needed to turn wood into
paper
3) Using recycled paper reduces the need for primary raw materials

Source: E-48. The Limits of Paper Recycling. Web: www.cost-e48.net

Figure 3 shows the economic limit of recycling. In the initial stages, cost of recycled
paper is well below paper from virgin pulp. These costs are rising as the utilization of
recycled paper is increasing. The cost rises to the extent that it matches the cost of
producing paper from virgin paper. This point is shown with red circle in the diagram. It
shows that after this limit, recycled paper utilization in economically not feasible because
the similar cost is being used for producing paper from virgin pulp.

32
33
11. Land Use Plan and Project Implementation Activities Plan

11.1Land Use Plan

Table: Land Budgeting for the Proposed Project
S.N Description Area LXW Area in MCom
bin Remark
1 Manufacturing and Processing Plant Building 150x80 22,000
2 Raw Material Inputs and Supply Building 100x100 20,000
3 Finished Product Accumulating Building 50x20x2 3,750
5 Residual Separation and Recycling Building 80x50 4,000
6 Staff living room mix50 person= 40m2/person 5x8x5 2,000
7 Administrative and Project Office Building 4x4x4 200
8 Staff Cafeteria Building 45x30 64
9 Free space for Loading/un loading 30x19 670
10 Clinical and Medical Service Building 25x10 250
11 Guard house 5x3x12 180
12 Septic tank 6x6 36
13 Toilet and shower room 10x4 40
14 Workshop , Machinery Maintenance Building 60x15 900
15 Reserved Area Expansion Building 6x5 30
16 Space for greenery, open space & recreation Rough 5,880
Total 30,000

34
11.2 Project Implementation Schedule/Activities Plan
Activities 20015 2016

July Aug Sep Oct Nov Dec Jan Feb March April May June

Acquisition of Land

Site Clearance

Installation Main Plant

Where house and Storage

Administrative and Office

Building

others

Acquisition of Machinery
and Equipment

Installation of Machinery

Acquisition of Raw
Materials

Start Up of the Project

35
12. Annexes

1. Loan Repayment schedule

2. Balance sheet of the Project

36