129.

PROFILE ON FILTER AID

129-2
TABLE OF CONTENTS
PAGE
I.

SUMMARY

129-3

II.

PRODUCT DESCRIPTION & APPLICATION

129-4

III.

MARKET STUDY AND SERVICE CAPACITY

A. MARKET STUDY
B. SERVICE CAPACITY & PROGRAMME

129-4
129-4
129-6

IV.

MEDICAL SUPPLIES & UTILTIES

A. MEDICAL SUPPLIES
B. UTILITIES

129-6
129-6
129-8

V.

TECHNOLOGY & ENGINEERING

129-8

A. TECHNOLOGY
B. ENGINEERING

129-8
129-9

VI.

MANPOWER & TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT
B. TRAINING REQUIREMENT

129-13
129-13
129-14

VII.

FINANCIAL ANLYSIS
A. TOTAL INITIAL INVESTMENT COST
B. OPERATION COST
C. FINANCIAL EVALUATION
D. ECONOMIC BENEFITS

129-14
129-14
129-15
129-16
129-18

129-3
I.

SUMMARY

This profile envisages the establishment of a plant for the production of filter aids
with a capacity of 160 tonnes per annum. Filter aids are mineral filters generally used to
remove solid particles from liquid media, and in particular for applications requiring the
filtration of high volumes of liquids.
Major raw material is diatomaceous earth, which is locally available.
The future demand for filter aids depends mainly on the growth of end user industries.
Hence, future demand for filter aids is contingent upon growth of the national economy,
especially the manufacturing sector. The present demand for the proposed product is
estimated at 132 tonnes per annum. The demand is expected to reach at 416 tonnes by
the year 2020.
The total investment requirement is estimated at about Birr 9.73 million, out of which
Birr 2.5 is required for plant and machinery. The plant will create employment
opportunities for 25 persons.
The project is financially viable with an internal rate of return (IRR) of 18.35% and a
net present value (NPV) of Birr 4.36 million, discounted at 8.5%.
The project has forward linkage effect with the manufacturing sector and backward
linkage effects with mining sector. The establishment of such factory will have a foreign
exchange saving effect to the country by substituting the current imports.
II.

PRODUCT DESCRIPTION AND APPLICATION

Filter aids are mineral filters generally used to remove solid particles from liquid media,
in particular for applications requiring the filtration of high volumes of liquids. The major
raw material for production of filter aid is diatomaceous earth.

129-4
Filter aids are used in food products, metallurgical process, petroleum refining and
processing, drug and pharmaceutical manufacture, flirtation of high volumes liquid, etc.
III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

Filter aids are diatomaceous earth generally used to remove solid particles from liquid
media, and in particular for applications requiring the filtration of high volumes of
liquids. The products are used in many industrial manufacturing processes.
The countrys requirement of the product is met through import. However, the available
import data lumps import of filter aids with other diatomaceous earth products under the
heading diatomite ( kieselguhr). Opinion of experts in the subject indicates that of the
total diatomite imported about 25% is filter aids. Accordingly, the total quantity of
diatomite imported and the share of filter aids during the period 2000 2006 is shown in
Table 3.1.
Table 3.1
IMPORT OF DIATOMITE AND SHARE OF FILTER AIDS

Year
2000
2001
2002
2003
2004
2005
2006

Diatomite
Share of Filter Aids
124.8
31.2
289.7
72.4
279.8
69.9
243.6
60.9
365.2
91.3
509.5
127.3
439.1
109.7
Source; External Trade Statistics.

129-5
As shown in Table 3.1, import of filter aids shows a considerable growth. Import which
was 31.2 tonnes in 2000 has grown to 60.9 tonnes and 109.7 tonnes in years 2003 and
2006, respectively.
To estimate the present effective demand for the product the average of the most recent 3
years covered by the data set is assumed to reflect the effective demand for year 2006.
Moreover, even though import of the product during the period 2000 2006 has
registered an average annual growth rate of 31.87% in order to be conservative a growth
rate of 10% is used. Accordingly, taking the average import of 2004 2006 as a base and
applying 10% growth rate the present (2008) effective demand for the product is
estimated at 132 tonnes.
2.

Projected Demand

The future demand for filter aids depends mainly on the growth of end user industries.
Hence, future demand for filter aids is contingent upon growth of the national economy,
especially the manufacturing sector.
Assuming that the manufacturing sector will grow by a rate higher than the average
national economic growth rate of 6-7% in the recent past, future demand for filter aids is
projected to grow by 10% annually.
assumption is as shown in Table 3.2.

The demand projection executed with this

129-6
Table 3.2
DEMAND PROJECTION ( TONNES)

Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
3.

Projected Demand
146
160
176
194
213
235
258
284
312
343
378
416

Pricing and Distribution

Based on the CIF price of the products in the external trade statistics for 2006 (the latest
data available) and allowing 30% for import duty and other clearing expenses, the
factory-gate price for the envisaged plant is recommended to be Birr 18,000 per tonne.
The product can get its market outlet through direct sales to customers. The plant can also
appoint agents at selected locations.

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

129-7

The market study conducted on the demand of filter aid has shown that there is no local
producer and the country's requirement for filter aid is totally met through import. Basing
on the market study and growth rate of the product users the proposed plant capacity for
the envisaged plant is 160 tonnes per annum, working 300 days per annum.
2.

Production Programme

The production programme considers that for the first production year the plant will
utilize 80% of its capacity, and 90% in the second year. For the third year and on ward
the plant will utilize its full capacity.
Table 3.3
PRODUCTION PROGRAMME
Sr.
No.
1
2

Description
1
Capacity utilization rate (%)
Filter aids (tonnes)

IV.

MATERIALS AND INPUTS

A.

RAW & AUXILIARY MATERIALS

80
128

Year of production
2
3-10
90
144

100
160

The major raw material required for the production of filter aids are diatomaceous earth,
sulfuric acid (98 %) and calcium oxide. All the raw materials used for the production of
filter aid are locally available; diatomaceous earth in Oromia region, sulfuric acid from
Awash Melkassa Sulfuric Acid and Aluminium Sulphate Share Company and calcium oxide
from Caustic Soda Share Company or Selkele. The total cost of annual raw and, auxiliary
materials in local currency is estimated at Birr 273,152 (see Table 4.1).
Table 4.1
ANNUAL CONSUMPTION OF RAW-MATERIALS & COST

129-8

No.
1
2
3
4

B.

Description

Qty.

Raw (ore) diatomaceous earth

Sulfuric acid (98%)
Calcium oxide
Paper bag 50 kg each (pcs)
Total Cost

161
52
7
4,680

Unit Cost
(Birr)
320.0
3,850.0
888.86

Cost In '000
(Birr)
51.52
200.20
6.22
15.21
273.15

UTILITIES

Utilities required for the manufacture of filter aid are electricity, water and fuel oil. Annual
utilities requirement of the project is given in Table 4.2.
Table 4.2
ANNUAL CONSUMPTION OF UTILITIESAND COST
Utilities
Electricity
Furnace oil
Water

UoM

Qty.

kWh
m3
m3

219,150
88
17,500

Total Cost
V.

Cost in 000
Birr
103.79
513.92
56.87
674.58

TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY
1.

Process Description

The natural discoloring power of filter aids can be greatly increased by an acid treatment
which generates the so-called activated earth. The acid treatment of diatomaceous
earth eliminates alkalis and calcium, reducing the contents of magnesium, iron and
aluminum in it. The acid treatment can be carried out by using either sulfuric acid
(H2SO4) or hydrochloric acid (HCL). Calcium oxide is used for the neutralization of the
spent acid.

129-9

The production process of filter aids from diatomaceous earth essentially involves the
following operations. The crude material is mixed with water to form a suspension to
which sulfuric acid is added. The mixture is then heated by steam in a mixing tank up to
a temperature of 40oc and kept at this temperature for about 4 hours. Then the mixture is
heated to 180oc for one hour. After cooling the suspension is filtered through a filter
press and washed in order to eliminate excess acidity. The cake of the activated earth is
then dried through a pneumatic conveyor by hot air (700oc). The product is collected in a
depot and then packed. The activated earth is packed in craft paper bags of 50kg. Filling
operations are carried out manually. Any leak of sulfuric acid that could be generated will
be washed by water and neautralized to a PH of 6-8 so that it will be disposable with out
harming the environment.
2.

Source of Technology

The technology of filter aids production is simple. The equipment can be supplied from
Denmark, India, Turkey, China and Italy. For technology supply the following company can
be contacted
Endeco S.P.A
Prato Della Valle 81-padoia
Tel: +39049655433
Fax: + 39049655697
E-mail: endeco@endeco.it
Website: www. Endeco.it

B.

ENGINEERING

1.

Machinery and Equipment

129-10
The list of production machinery and equipment required for the plant is provided in Table
5.1. The total cost of plant machinery and equipment is estimated at Birr 2,500,000, out of
which Birr 1,912,000 will be in foreign currency.
Table 5.1
MACHINERY & EQUIPMENT REQUIREMENT AND COST

Sr.
No.

Description

FC

LC

Feeding hopper

125.0

Belt conveyor

37.5

212.5

Mixer

21.0

119.0

Steam reactor (mixing tank)

90.0

510.0

Cooler

30.0

170.0

Filter press

36.0

204.0

Washer

18.0

102.0

Pneumatic conveyor

15.0

85.0

Storage tank

125.0

10

Mini Boiler

60.0

340.0

11

Filling equipment

9.0

51.0

12

Compressor

21.0

119.0

587.5

1,912.5

Grand Total

2.

Cost in Birr000

Qty.
(No.)

Total
125.0
250.0
140.0
600.0
200.0
240.0
120.0
100.0
125.0
400.0
60.0
140.0
2,500.0

Land, Building and Civil Works

The total land requirement for the envisaged plant is estimated at 2,000 m 2, out of this
750 m2 is built-up area. 500 m2 will be covered by production facility, 170 m 2 will be

129-11
covered by stores and 80 m2 will be covered by office building. Cost of building
construction with a rate of Birr 2,400 per m2 amounts to Birr 1,800,000.
According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation
No 272/2002) in principle, urban land permit by lease is on auction or negotiation basis,
however, the time and condition of applying the proclamation shall be determined by the
concerned regional or city government depending on the level of development.
The legislation has also set the maximum on lease period and the payment of lease
prices. The lease period ranges from 99 years for education, cultural research health,
sport, NGO , religious and residential area to 80 years for industry and 70 years for trade
while the lease payment period ranges from 10 years to 60 years based on the towns
grade and type of investment.
Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the
entire amount of the lease will receive 0.5% discount from the total lease value and those
that pay in installments will be charged interest based on the prevailing interest rate of
banks. Moreover, based on the type of investment, two to seven years grace period shall
also be provided.
However, the Federal Legislation on the Lease Holding of Urban Land apart from setting
the maximum has conferred on regional and city governments the power to issue
regulations on the exact terms based on the development level of each region.
In Addis Ababa the Citys Land Administration and Development Authority is directly
responsible in dealing with matters concerning land.

However, regarding

the

manufacturing sector, industrial zone preparation is one of the strategic intervention

measures adopted by the City Administration for the promotion of the sector and all
manufacturing projects are assumed to be located in the developed industrial zones.

129-12
Regarding land allocation of industrial zones if the land requirement of the project is
blow 5000 m2 the land lease request is evaluated and decided upon by the Industrial Zone
Development and Coordination Committee of the Citys Investment Authority. However,
if the land request is above 5,000 m 2 the request is evaluated by the Citys Investment
Authority and passed

with recommendation to the Land Development and

Administration Authority for decision, while the lease price is the same for both cases.
The land lease price in the industrial zones varies from one place to the other. For
example, a land was allocated with a lease price of Birr 284 /m2 in Akakai-Kalti and Birr
341/ m2 in Lebu and recently the citys Investment Agency has proposed a lease price of
Birr 346 per m2 for all industrial zones.
Accordingly, in order to estimate the land lease cost of the project profiles it is assumed
that all manufacturing projects will be located in the industrial zones. Therefore, for this
profile, which is a manufacturing project a land lease rate of Birr 346 per m2 is adopted.
On the other hand, some of the investment incentives arranged by the Addis Ababa City
Administration on lease payment for industrial projects are granting longer grace period
and extending the lease payment period. The criterions are creation of job opportunity,
foreign exchange saving, investment capital and land utilization tendency etc.
Accordingly, Table 5.2 shows incentives for lease payment.
Table 5.2
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS

Grace
Scored Point
Period
Above 75%
5 Years
From 50 - 75%
5 Years
From 25 - 49%
4 Years
For the purpose of this project profile

Payment
Completion
Down
Period
Payment
30 Years
10%
28 Years
10%
25 Years
10%
the average. i.e., five years grace period, 28 years

payment completion period and 10% down payment is used. The period of lease for
industry is 60 years.

129-13
Accordingly, the total lease cost, for a period of 60 years with cost of Birr 346 per m 2, is
estimated at Birr 41.52 million of which 10% or Birr 4,152,000 will be paid in advance.
The remaining Birr 37.37 million will be paid in equal installments with in 28 years i.e.
Birr 1,334,571 annually.
VI. MANPOWER AND TRAINING REQUIREMENT
A. MANPOWER REQUIREMENT
In order to run the envisaged plant efficiently, it needs 25 employees. The estimated
annual cost of manpower is Birr 297,000. The detail of which is shown in Table 6.1
Table 6.1
MANPOWER REQUIREMENT AND ESTIMATED ANNUAL LABOUR COST
Sr.
No.
1
2
3
4
5
6
7
8
9
10
11
12

Description
Manager
Administration + Finance Head
Secretary
Sales / purchase man
Production Supervisors
Chemist
Operators
Technicians
Laborers
Store keeper
Guard
Driver
Sub-Total
Employees benefit 20 %
Total

B.

TRAINING REQUIREMENT

Req.
No.
1
1
1
1
1
1
4
2
6
1
4
2
25

Monthly
Salary (Birr)
3,500
2,800
900
1500
1,500
1,000
2,400
1,200
2,100
500
1,400
1,000

Annual Salary
(Birr)
42,000
33,600
10,800
18,000
18,000
12,000
28,800
14,400
25,200
6,000
16,800
12,000
237,600
59,400

25

297,000

129-14
On-job training will take place during erection and commissioning by experts of the
machinery supplier for operators, supervisors, chemists and technicians. The cost of
training is estimated at Birr 35,000.
VII.

FINANCIAL ANALYSIS

The financial analysis of the filter aids project is based on the data presented in the
previous chapters and the following assumptions:Construction period

1 year

Source of finance

30 % equity
70 % loan

Tax holidays

2 years

Bank interest

8.5%

Discount cash flow

8.5%

Accounts receivable

30 days

Raw material local

30 days

Work in progress

1 days

Finished products

30 days

Cash in hand

5 days

Accounts payable

30 days

Repair and maintenance

5% of machinery cost

A.

TOTAL INITIAL INVESTMENT COST

129-15
The total investment cost of the project including working capital is estimated at Birr
9.73 million, of which 20 per cent will be required in foreign currency. The major
breakdown of the total initial investment cost is shown in Table 7.1.
Table 7.1
INITIAL INVESTMENT COST ( 000 Birr)
Sr.
No.
1

Land lease value

Local
Foreign
Cost
Cost
4,152.00
-

Total
Cost
4,152.00

Building and Civil Work

1,800.00

1,800.00

587.50

1912.5

2,500.00

100.00

100.00

Plant Machinery and

Equipment
Office Furniture and
Equipment
Vehicle

450.00

450.00

Pre-production Expenditure*

603.29

603.29

Working Capital

133.18

133.18

Cost Items

Total Investment cost

*

7,825.97 1,912.50 9,738.47

N.B Pre-production expenditure includes interest during construction ( Birr 468.29

thousand ), training ( Birr 35 thousand)

and Birr 145

thousand

costs of

registration, licensing and formation of the company including legal fees,

commissioning expenses, etc.

B.

PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 2.41
million (see Table 7.2). The raw material and utility cost accounts for 39.26 per cent of
the production cost. The other major components of the production cost are depreciation,
financial cost and direct labour which account for 26.85%, 16.40% and 5.91%
respectively. The remaining 11.58 % is the share of repair and maintenance, labour
overhead and other administration cost.

129-16

Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)
Items
Raw Material and Inputs
Utilities
Maintenance and repair
Labour direct
Labour overheads
Administration Costs
Land lease cost
Total Operating Costs
Depreciation
Cost of Finance

Cost

273.15
674.58

11.32
27.95

125.00
142.56

5.18
5.91

59.40
95.04

2.46
3.94

1,369.73
648.23

56.74

395.92

16.40

2,413.88

100

26.85

Total Production Cost

C.

FINANCIAL EVALUATION

1.

Profitability

Based on the projected profit and loss statement, the project will generate a profit through
out its operation life. Annual net profit after tax will grow from Birr 949.70 thousand to
Birr 1.55 million during the life of the project. Moreover, at the end of the project life the
accumulated cash flow amounts to Birr 10.65 million.

2.

Ratios

129-17
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.
3.

Break-even Analysis

The break-even analysis establishes a relationship between operation costs and revenues.
It indicates the level at which costs and revenue are in equilibrium. To this end, the
break-even point of the project including cost of finance when it starts to operate at full
capacity ( year 3) is estimated by using income statement projection.
BE =

Fixed Cost

27 %

Sales Variable Cost

4.

Payback Period

The pay back period, also called pay off period is defined as the period required to
recover the original investment outlay through the accumulated net cash flows earned by
the project. Accordingly, based on the projected cash flow it is estimated that the
projects initial investment will be fully recovered within 5 years.

5.

Internal Rate of Return

129-18
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 porject is computed to be 18.35 %
indicating the vaiability of the project.
6.

Net Present Value

Net present value (NPV) is defined as the total present ( discounted) value of a time
series of cash flows. NPV aggregates cash flows that occur during different periods of
time during the life of a project in to a common measuring unit i.e. present value.

It is a

standard method for using the time value of money to appraise long-term projects. NPV
is an indicator of how much value an investment or project adds to the capital invested. In
principal a project is accepted if the NPV is non-negative.
Accordingly, the net present value of the project at 8.5% discount rate is found to be
Birr 4.36 million which is acceptable.
D.

ECONOMIC BENEFITS

The project can create employment for 25 persons. In addition to supply of the domestic
needs, the project will generate Birr 1.70 million in terms of tax revenue.

The

establishment of such factory will have a foreign exchange saving effect to the country by
substituting the current imports. The project has forward linkage effect with the
manufacturing sector and backward linkage effects with mining sector