See discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/330488613 Project Proposal for Post-Consumer Plastic Recycling Project Technical Report · January 2019 DOI: 10.13140/RG.2.2.27442.04805 CITATIONS READS 2 81,514 1 author: A.Aruna Shantha Sabaragamuwa University of Sri Lanka 55 PUBLICATIONS 73 CITATIONS SEE PROFILE Some of the authors of this publication are also working on these related projects: Economic Losses of Chronic Kidney Diseases of Uncertain Etiology (CKDue) in the Dar-Zone of Sri Lanka: Cost of Illness Approach View project World Bank View project All content following this page was uploaded by A.Aruna Shantha on 19 January 2019. The user has requested enhancement of the downloaded file. Project Proposal for Post-Consumer Plastic Recycling Project Emerald Electricals & plastic industries Chief Consultant A. Aruna Shantha (PhD) Executive Summary Criteria Summary Description Name of the Emerald Electricals & plastic industries Project Year Initiated 2002.04.27 Main Objectives of To conduct a cost benefit analysis for proposed post-consumer and postthe Project industrial plastic recycling project in Puttalm. Proposal Summary of The project is laid out basically under 4 main branches of (a).collecting Proposed Project plastics from rural areas (b), purification of chemical barrels (c) crushing plastics and (d) manufacturing products. The water used for the purification of chemical barrels will be re-used after undergoing a purification process via water treatment plants. Around 55% of the plastic powder, which is the final output, will be used in the production of plastic flower pots and plastic crates and balance 45% will be sold as plastic raw materials. Total Investment Fixed Cost = Rs. 33.26 Million, Average Variable cost with full capacity (Rs.M) Rs/Year = 9.59 Millions, Raw material cost Rs. 48.4 Million per year. Gross Revenue With Full production capacity 90 Million (Rs. Per year) Net Revenue (Rs. With full production capacity 69 Million Per year) Total Job Creation 64 direct employments. National level It is lead to address the behavior change necessary among the Sri Lankan impact of the consumer to ensure the proper disposal of plastic waste in manner which project will not be harmful to the environment and Natural Resources. Project directly support to save the foreign exchange by enhancing recycling of post-consumer and post-industrial plastic waste Methodology The methodology adopted for the cost benefit analysis of the investment is Adopted based on guideline for environmental project assessment generally recommended by Asian Development Bank and World Bank Decision Criteria IRR , NPV and B/C ratio (Financial analysis or with financial Benefit for overall project only), evaluation IRR, NPV and B/C ratio (Economic analysis or with financial and Foreign saving ) . Major Conclusion It was observed that a financing of the prosed post-consumer and postunder financial industrial plastic recycling project can be well justified in both financial analysis and terms. Major Conclusion All these decision criteria presented and discussed in this study, indicate under overall that the financing of this plastic recycling Project would be well justified Economic analysis economic terms. Besides, on social point of view, the project is highly viable. Major Recommendation of the Report As the project is economically and financially justified, this study proposes to the further extension of project activities with the support of the local government. 1 1. Industry and Marketplace Analysis 1.1 Global Context Global production of plastic has increased dramatically in the past 70 years, from 1.9 million tons in 1950 to 336 million tons in 2013. (Jones, 2015). It is estimated that 4 percent of the world’s annual consumption of petroleum is used as feedstock for plastic , and more than one third of plastic are consumed as packaging that is discarded quickly (Thompson, Moore, Vom Saal, & Swan, 2009). Production of plastic around the world has grown by an average of 8.7 percent per year from 1950 to 2012; and since the 1970s, plastic has been replacing glass metals and paper in automotive and packaging applications (Johnson, 2015). As size of the global middle class continues to expand, consumption of plastic will also grow. It is estimated that consumption of nine major thermoplastic will grow by 4.5 percent annually from 2013 to 2017 or by more than 40 million tons (Galie & Trabucchi, 2013). 1.2 Local Context According to UNIDO, annual plastics consumption in Sri Lanka is close to 140,000 metric tons, with an estimated growth rate of 10-12%. More than 900 businesses in Sri Lanka are engaged in plastics processing for both domestic & international market, the bulk of them being in SME scale. 490 companies are engaged in direct plastic exports in 2016 with 88% of them being finished products exporters and rest 12% are raw materials and waste exporters. Among the finished products exports, 60% were packaging materials / packaging goods of plastics. Cellulose and its Chemical derivatives constitute the highest export value among the primary forms of plastic exports taking 6% of the total plastic exports in 2009. USA is the dominant buyer of plastic exports over the last number of years taking 40% of the total exports. 1.3 Environmental Issues Sri Lanka imports annually a considerable amount of plastic raw materials and finished products and a major portion of them end up as Post Consumer Plastic Waste causing severe environmental problems. It is estimated that about 160,000 tons of plastic raw materials and products are imported and out of this 30% has been exported as finished products and the remaining are used in the local market. In Sri Lanka dump one million sachet packets - be it with sauce, jam or shampoo, dump 20 million polythene bags and 15 million lunch sheets landfill per 2 day. (Dangalla, Chandrasena, Semasingha, & Amarasingha, 2013). The Colombo municipal Council collects 700 tons of garbage on average per day and 6 percent of this is polythene and plastic waste. Although the share of polythene and plastics of in Municipal waste is only about 6.0 per cent of the total solid waste, its environmental impact is much greater than the other waste material. This material i.e. 'thin' polythene when discarded after use (20 and less micron thickness) will remain in the soil for at least 100 years (Dangalla, Chandrasena, Semasingha, & Amarasingha, 2013). The problems they create are numerous According to world surveys by every ten years the plastic consumption increases by three times. This poses a great challenge as well as a threat to the environment. Life-cycle analysis can be a useful tool for assessing the potential benefits of recycling programmes. If recycled plastics are used to produce goods that would otherwise have been made from new (virgin) polymer, this will directly reduce oil usage and emissions of greenhouse gases associated with the production of the virgin polymer (less the emissions owing to the recycling activities themselves). 2. Industry Profile 2.1 Background of the Company Emerald Electricals & Plastic Industries is a wholly Sri Lankan owned private company owned by Mr.H.S Priyantha Silve, Chairman, and incorporated by Business Names Statute No.4 of 1990, was registered in the Department of the Provincial Registrar of Companies for Western Province under no. W. U 8691 on 27th April, 2002. The company has taken an Environment Protection License from Central Environment Authority. Presently the company is one of the major plastic and polythene collector, recycler and producer in the western province in Sri Lanka and company head office & factory located in Peralanda, Ragama. At the movement, Industry is collecting and recycling post-consumer and post- industrial plastic and 25% of recycled plastic are being used for reproduction (Sunk Boxes, MCB, Ceiling rose, Shoe heel, Measuring cup and etc.) and balance 75% are being sold as plastic raw materials. 3 Table 01: Summary of Company Profile The Business Name Emerald Electrical and Plastic Industries The General Nature of the Business Recycling plastic and Injection Molding The Principal Place of the Business No. 181/A, Peralanda, Ragama The Date of the Commencement of the 2002.04.27 Business Full Name of the Owner Hettiyadura Susil Priyantha Silva The Nationality of the Owner Sri Lankan The Usual Residence of the Owner No. 181/A, Peralanda, Ragama Nature of the Registration Department of the provincial Registrar of Companies, Western Province Registration No W.U 8691 2.2 Existing Management Structure Mr. Susil Priyantha Silva is the owner and promoter of Emerald Plastic. His son Mr. H. Nalaka Silva is working as a Managing Director and he has intensive knowledge and vast understanding in plastic recycling and management which undoubtedly help in the business. Besides, the elder son of the owner Mr. Shivanka Silva has a good knowledge of chemicals and their properties, marketing skills like convincing power, negotiating ability, creating promotional strategies and sales skills which are extremely helpful in taking the business a long way and prove intensely valuable to this venture. Thus such potential skills of family members and other qualities like efficient interpersonal skills, leadership skills and decision making quality of owner, are success elements of Emerald Electricals & Plastic Industries. Presently the industry is functioning with six supportive skilled and unskilled labourers The organization chart is briefly explaining the present management structure as shown in figure 01 4 Figure 01: Organization Chart Managing Director Supervisors Supervisors Raw Materials Unskilled Workers Recycling Skilled & Unskilled Workers Sales Production Skilled Workers (Procuanment) Skilled Workers Skilled Workers 5 2.3 Further Expansion of the Business As our per capita plastic consumption is set to increase from current 6 Kg to 8 Kg and plastic has become an indispensable item in our lives and manufacturing, company believe this is the right time to strengthen this sector and company is planning to expand our recycling capacity by establishing new plant at Puttalam. The existing plant has the capacity to recycle 12 tons of plastics per month but it is not sufficient for monthly collection and fulfills the demand for our plastic products and powder. Around 25 percent of total recycled plastic is reused for production and the balance is sold to local plastic manufacturers as raw materials who produced various plastic items. Since the company has a sufficient post-consumer and industrial consumer plastic supply chain, present recycle volume could be increased substantially if the factory could get sufficient storage capacity for waste plastic. The company is now seriously looking for extra opportunities for post-consumed plastic, especially plastic chemical barrels and cans for recycling process. Presently, company has a single plant and warehouse at Ragama and company has planned to extend this facilities to Puttalam District. 2.4 Need Analysis for Proposed Project A pesticide may refer to a particular compound or chemical substance. It can be a fungicide, herbicide, insecticide, mulluscicide, nematicide, rodenticide, and others that are used to target certain unwanted living organisms. Since the 1900s, people have been using different types of pesticides and the environment is filled with various levels of these chemicals. These include organochlorine, organophosphate, carbamates, and pyrethroids, which all became successful in controlling pests. All those pesticides come from different sizes of plastic cans and barrels. However, up until now, proper recycling process of these chemical barrels has not been identified in Sri Lanka and it is a major drawback in rural areas. Since more than 65% of Sri Lankan rural households are engaging in farming as their main occupation, small size postconsumer chemical plastic cans could be found at every household in rural areas. Thus, this environmental friendly project is laid out basically under 4 main branches of collecting from rural areas, purification of chemical barrels, crushing plastic and manufacturing of products. The water used for the purification of chemical barrels will be re-used after undergoing a purification process via water treatment plants. The plastic powder, which is the final output, will be used in 6 the production of non-consumer plastics such as plastic flower pots, plastic crates, wesak Lanterns. 3. Technical Information 3.1 Types of plastics The six most common types of plastics which can easily be recycled. The plastics industry has voluntarily devised a coding system which makes recycling plastics easier. Table 1 shows these 6 types of plastics with their identification code, general properties and common uses. Table 02: Type of Plastic Identification Type of plastic code Polyethylene terephthalate (PET/PETE) PET High density polyethylene (HDPE) HDPE Polyvinyl chloride PVC (PVC) General properties Common uses Clear Hard Tough Barrier to gas and water Resistance to heat Resistance to grease/oil Barrier to water Chemical resistance Hard to semi-flexible Strong Soft waxy surface Low cost Permeable to gas Natural milky white colour Transparent Hard, rigid (flexible when plasticised) Good chemical resistance Long term stability Electrical insulation Low gas permeability Mineral water bottles 2 liter soda bottles Cooking oil bottles Powder detergent jars Fibre for clothing Fibre for carpets Strapping Peanut butter jars Jerry cans “Crinkly” shopping bags Film Milk packaging Toys Buckets Rigid pipes Crates Bottle caps Pipes and fittings Carpet backing Window frames Water, shampoo and vegetable oil bottles Credit cards Wire and cable sheathing Floor coverings Shoe soles and uppers 7 Low density polyethylene (LDPE) Poly LDPE PP propylene (PP) Polystyrene (PS) PS Other plastics OTHER Tough Flexible Waxy surface Soft - scratches easily Good transparency Low melting point Stable electrical properties Moisture barrier Excellent chemical resistance High melting point Hard, but flexible Waxy surface Translucent Strong Clear to opaque Glassy surface Rigid Hard Brittle High clarity Affected by fats and solvents Agricultural films Refuse sacks Packaging films Foams Bubble wrap Flexible bottles Wire and cable applications Yoghurt containers Potato crisp bags Drinking straws Medicine bottles crates, plant pots Car battery cases Heavy gauge woven bags Packaging pellets Yoghurt containers Fast food trays disposable cutlery Coat hangers Mostly not available in sufficient quantities for recycling 8 4. Production Process 4.1 Collection of waste plastic An important first step in starting a plastic recycling business is setting up a collection system of waste plastics. A constant supply of raw materials to the factory is of utmost importance for the existence of the business. Collection of waste plastic may already happen through the activities of scavengers, middlemen and traders. It is possible to integrate this system by letting them know that the factory is willing to buy plastic waste material. Another option is to cooperate with the municipality to get involved in collection schemes accompanied with a public awareness campaign. In this way the public can be informed about the advantages of plastic recycling. Our mega suppliers are Sri Lanka telecom, Singer, Lanka Bell, Santel and Robbialac. Figure 02: Production Process with Flow Chart Plastic Waste Collection Shredding Cutting Packing & Storage Selling as Plastic Raw Materials Further processing Production Storage Drying Identification Washing Selling of Products 4.2 Storage The plastic recycling enterprise needs quite a large storage space in order to store all collected waste items, processed materials and finished products. Plastic waste items, especially chemical barrels and cans which we have planned to collect, have a large volume and therefore a large storage place is necessary. At the moment we have only one ware house at Ragama. 9 4.3 Sorting and identification Plastics sorting operations may be carried out manually or automatically using appropriate means of identification. The more accurate and efficient the means of identification, sorting and separation, the better is the quality of the recovered product obtained. Best suited for sorting plastics is manual process and we use full time man power for this task. The secondary raw material obtained by hand sorting is of high quality and offers an excellent basis for producing high quality products by small and medium scale industry. To aid in identification, it is now common for plastic containers to have a polymer identification code. Unfortunately, other plastic applications do not carry such identifiers and are, therefore, more difficult to identify by polymer type without some experience. There are several simple tests that can be used to distinguish between the common types of polymers so that they may be separated for processing. We are applying the following test for identification of plastics. The Water Test. A piece of plastic is put into a container of water and if the plastic floats, the plastic belongs to a low-density materiel such as PP, HDPE, LDPE, HDPE. And if the plastic sinks, then the plastic belongs to the high-density plastic group such as ABS, HIPS Kerasin,PBT, acralic, PC. Burning Test. Hold a piece of the plastic in a tweezers or on the back of a knife and apply a flame. If this plastic burns continually, then the plastic belongs to the recyclable plastic group. If the plastic burns and gives a dark black smoke, then the plastic belongs to ABS. However in our organization, this separation or segregation process, in many cases, are done by manual process utilizing the availability of cheap and expert labor force. In case the waste is contaminated with embedded metals, proper method of separating the metals / other contaminants is required. 4.4 Washing The scale of cleaning depends on the type of waste. Whenever a cleaning operation is involved, it is to be ensured that the water or any other cleaning material used, should be discharged after ascertaining that the discharge does not contain any objectionable substance. A proper Treatment Device may have to be deployed – like a water treatment plant / effluent treatment plant. For drying, a suitably designed drier is used. Many industries situated outside the metropolises, use 10 open space for natural drying of the cleaned waste. If the plastic is dirty, cleaning is necessary. However, at the moment we don’t have a washing plant to wash the collected plastic and we have planned to establish the washing plant in the Puttalam branch. The main cleaning steps which we are planning to apply: - Draining of remaining fluids from containers into prepared collection barrels. -Rough cleaning of plastic containers and other pieces of plastic. - Removing of paper, plastic or metal stickers. - In the case of PET bottles removing of caps and etiquettes. - Intensive washing in cold or hot water with addition of detergents or caustic soda. The waste water can be reused by installing a simple waste water treatment system like a sedimentation basin 4.5 Cutting Cutting is usually carried out for initial size reduction of large plastic objects. It can be carried out with a plastic cutting machine, specifically designed to cut plastic into smaller plastic pieces. 4.6 Shredding Shredding is suitable for smaller pieces. A typical shredder has a series of rotating blades driven by an electric motor, some form of grid for size grading and a collection bin. Materials are fed into the shredder via a hopper which is sited above the blade rotor. The product of shredding is a pile of coarse irregularly shaped plastic flakes which can then be further processed. 4.7 Extrusion / Palletisation This is the most important part of the process wherein the sized / chipped plastics are plasticized and granulated to make the plastics material ready for fabrication next. The type and size of the Extruder depend on the type and volume of the plastics waste. The project will commence the palletisation with new investment. 4.8 Fabrication into end Product Finally the reprocessed plastics granules are used as raw material for producing end products using similar fabrication machines like Injection Molding / Extrusion etc., depending upon specific requirement 11 5. Employment Generation of the Project In order to better inform investment decisions, it is important to understand all of the potential benefits of projects, both direct and indirect. Given that a key feature of government policy is the creation of jobs, an analysis of the employment impact of investment projects would clearly be of assistance in the formulation of budgetary decisions. This note estimates the employment impact of a range of possible infrastructure projects. The purpose of this section is to provide clarity on the short-term employment effects of a range of potential investment projects. For each project, the level of employment is evaluated. This includes the level of direct employment (people employed on the project), indirect employment (people employed in the supply of goods or services to the project) and induced employment (the additional employment generated due to the increase in consumption as a result of the direct and indirect employment increases). There are some individual collectors who earns between Rs 2,000 to 4,000 daily by collecting plastic waste and once it is expanded to the North and East collectors could sell them to our collectors at the best current market prices. This will give an opportunity for people to earn an extra income for their day-to-day living while ensuring an Environment is ensuring the free of plastic waste. Further, both skilled and unskilled additional labour will be absorbed to the project. Table 03: Job Creation (With & Without Project) Process No of Employees Without Project No of Employees With Project No of New Job opportunities with New Project 64 Direct Employment 80 144 Supervisors 2 3 1 Skilled Workers 2 4 2 Unskilled Workers 4 12 8 Waste Collectors 60 100 40 Agents 12 25 13 50 150 100 Others Indirect Employment Total 12 6. With and Without Situation of the Project “Without” examines the current situation of the project and “With” examine the project situation with proposed new investment 6.1 Scope of Operations (With and Without Project) At present our recycling capacity is 12 Tons per month from which in initial stages we were utilizing around 50%. As the business expanded company has reached to optimum capacity utilization. With the establishment of our new branch at Puttalam the company expects to start producing more advance plastics in the second year of our operations and accordingly the sales will increase and the facility will have to be expanded. The proposed plant at Puttalam will commence recycling of chemical plastic barrels in the second year with the capacity of 54 tons per month. The recycling capacity of the company is given in table 04 below. Table 04: Recycling Capacity of Plastic – With Project and Without Project Without Project (2015) With Project (2019) Incremental Output With New Investment Type of Plastic Recycled (Mt/Month) HDPE (4%) MT 0.4 Type of Plastic Recycled (Mt/Month) HDPE (52%) MT Mt/Month 28 27.6 PP (15%) 8.1 4.1 PP (33%) 4 PS (1%) 0.1 Ps (3%) 1.7 1.6 Other (ABS) (62%) 7.5 ABS (30%) 16.2 8.7 Total 12 54 42 6.2 Existing Production Capacity (Without Project) We provide a wide range of plastic items for households as finished goods and supportive materials to companies which are produced based on post-consumer plastic and post-industrial plastic. Besides, the plastic power which is our recycle unit is processed and eventually sold to 13 main plastic products in the country as raw materials which can be used for the production of finished plastic good. The plastic powder, which is the final output is being used in the production of Sunk Boxes, Ceiling Rose, MCB and Round Block under the Emerald brand name. We produce different sizes of chemical measuring cups to Harcross and M-Chem Company as sub orders. Beside, we produce Wesak Lanterns, Antenna boxes, Three-Wheeler mud cover, rim cover and tricycle wheel and household level requirements. 6.3 Production Capacity With New Investment (With Project) With project Our existing production capacity, both the plastic powder and finished product is supposed to be increased by 500% after the establishment of the new plant at Puttalam.45% of plastic powder, which is the final output, will be used in the production of plastic flower pots and plastic crates under Emerald brand name and the balance will be sold to plastic producers as raw materials for their production. 7. Sales and Distribution System – With Project 7.1 Target Market Segments One of the first steps to identifying a target market for our product is to take a long hard look at the people who already buy from us. Even if our current customers seem like adverse bunch, the changes are pretty good that they will share at least one or two common characteristics. The company current market segmentation is given in figure 03 below. 7.2 Distribution Strategy Firstly we will target the Western Province and North Western Province for our new product and secondly the rest of the country. We will have a distribution center in Puttalam, and Ragama which will continuously maintain the supply of finished goods. The household plastics will be sold through small local grocery shops and Agents from which the customers can get them easily. As a new strategy we will hire street hawkers who will roam around the main cities and sell the goods door to door. Our final products will be stored in warehouses which are close to the factory itself. The sales people will directly contact to the companies which require our products and look for the contracts. With the expansion of the market we will have distribution centers in other provinces and based on that center we will distribute to whole sellers among the country. 14 Figure 03: Market Segmentation Market Segmentation Plastic Products Plastic Raw Materials Directly Sold to Plastic Manufacturing Industries Direct Sold to Contractors Compliments for other industries (Mesuring cups & lids, Antenna boxes, Shoe heels, TW mud cover. Wesak Lanterns) Our Own products under Emerald brand name Whole sales for Businessman Whole sales for Agents (Sunk Boxes, ceiling Rose, MCB, Round Block, (Sunk Boxes, ceiling Rose, MCB, Round Block, ) whole sales for Agents 15 7.3 Advertising & Promotion Strategy We will use two different promotional strategies. For our own products we will use flyers which will have full detail of our product range, price and discounts. These flyers will circulate through the newspapers across. For all business we will promote through online social media and we will also develop our website which will enable us to widely spread our contact among various companies. The site will have full details of product which are available for companies as well as the end user. 7.4 Sales Strategy The strategy of sales effort will be to convert potential and first time customers into long term customers. Our sales strategy is totally based upon the distribution channel and the pricing strategies. The industry presently has a distribution center at Ragama and new one will be established in Puttalam and it will take care of sales of household and also supply products to the whole sellers. We will also give the industrial customers a facility to order the products through our website which will help them in reducing the delivery time. To market the products, the Company will use a number of sales agents/brokers. They have a customer base of their own, having developed successful relationships with their clients over the years. Their customer base is currently demanding products so they can expand upon their current base. Of course, they will expand that to new customers when the product is available. If the Company grows faster than its prime customer base, additional capacity may be developed. The company will identify additional prospective customers who can be attracted for our products 7.5 Marketing Strategy It is helpful to view marketing strategy planning as a process of segmenting markets, target specific customers and working to offer an effective position among the competitors. Four basic market opportunities: market penetration, market development, product development and diversification. With new plants at Puttalam we attempt to increase sales of current products in present markets at the beginning and we will introduce new strategies to penetrate markets including: more aggressive marketing, increasing service to improve renewal rates, or attracting competitor customers directly. Under market development our effort to increase sales by selling current products into new markets. We have planned to reach new target customers by expanding 16 our geographic region and look into international markets for expansion. With new plant at Puttalam we have planned to increase the quality of the product or product development. It refers to offering new or improved products to present markets. By working closely with our customers, we may find new and innovative ways to better satisfy our target market. Besides after the establishment of our new venture at Puttalam we would be able to diversify our current products. With diversification of our products, it will open completely new lines of business, with new products in new markets. We have planned to commence the production of plastic flower plots and plastic crates with the new investment. We will diversify our product mix to mitigate risks related to economic variables such as recessions. 7.6 Market Comparison While quality and delivery are important factors to our potential clients, price is most often the determining factor in a buying decision. Good-quality plastic products manufactured from recycled (less expensive) resins, as close as practical to the end customer's operations, will be most competitive and achieve a significant market share. These factors have helped to determine the business parameters of Replay Plastics. Thus, we will highly focus those areas to expand the market share. 7.7 Competitor Analysis In the recycled plastic manufacturing market there is no specific brand name existing so the market in Sri Lanka is flooded by small companies which are in this business. So they are our biggest direct competitors. As we are also not alone as a supplier of ABS, PP, HDPE and PS to the companies as raw materials, there are many companies in this region who are supplying those types of recycled plastics. So in case of business to business market they are our direct competitors. 17 8. Supply Chain (Post- Consumer and Post-Industrial Plastic) 8.1 Supply Chain - Without Project In the Western Province there are various small post-consumer plastic collectors closely connected with our industry. To make a continuous supply of raw material we have linked with a few large scale plastic suppliers such as Sri Lanka Telecom, Singer Lanka, Lanka Ball, House of Fashion and Phoenix. We have 40 permanent suppliers (agents) who are continuously supplying the raw material over the country. We directly parched plastic materials from Gampaha, Colombo, Kurunagala, Puttalam and Vauniya Districts and indirectly our service spill over to other districts. We are taking bulk amounts of post-consumer plastic telephone from Sri Lanka Telecom regularly in line with their tender procedure. Sri Lanka Telecom regularly calls the tender for post-consumed plastic telephone and we are one of the main buyers of such tenders in line with tender procedures. Besides, our collectors are collecting post-consumer computer terminals and recycle the plastic component of such terminals. Further, our agents are collecting post-consumer paint baskets, fiber, and vehicle buffers. Different types of plastic component which are used by garment industries in Free Trade Zones are also collected by our agents and added to the supply chain. House of Fashion and Phoenix are another two large scale organizations which is contribute to our supply chain. Robbialac and Haritha Lanka also contribute to our supply chain. In case of excess demand other suppliers will be taken into consideration. All collected raw materials are stored in our wharehouse which is located in Ragama. With the new project, we have planned to establish a new warehouse in Puttalam to strengthen the existing supply chain and minimize the raw material risk. 18 Figure 04: Supply Chain Mega Suppliers SLT, Singer, Lanka Bell, House of Fashion, Phoenix, Free Trade Zone Household level Plastic waste Agents/ Collectors Purchased and Transported Warehouses Ragama Proposed at Puttalam 19 Table 05: Monthly Average Plastic Collections Without Project Quantity (Kg/Month) With Project Quantity (Kg/Month) Incremental Net Collection (Kg/Month) SLT 3.0 3.7 0.7 Singer 6.5 3.7 -2.8 Lanka Bell 4.0 5.0 1.0 Garments 0.5 0.6 0.1 House of Fashion 0.25 0.3 0.05 Phoenix 0.5 0.6 0.1 Nico - 7.4 7.4 Household level 0.25 0.3 0.05 Chemical Barrels - 37 37 Nawam Lanka - 8.0 8.0 Total 15.0 66.6 51.6 Suppliers Mega Suppliers 8.2 Supply Chain (With project) We have planned to further expand our supply chain with the proposed plant at Puttalam and expected yearly improvement are as follows. Table 06: With Project Productivity Improvement Year % Improvement 1 Year 66% 2 Year 125% 3 Year 500% Out of 100% collection improvement, 50% is supposed to be from chemical barrel collection which is new area to the industry. 20 8.3 Sorting and storing facilities (Without Project) Collected plastic raw materials are initially shrted in line with common categories of plastics and stored in three stores. Since more than 62% of our collections are ABS, we have used two stores for ABS collections. Capacity of store one is around 5.0 Mt and it is 504 sf2. Our second store is 323 sf2 and storage capacity is 3.2Mt. Third store is allocated for storing HDEP, PP and Ps, its capacity is 5.7 Mt and it has 180 sf2. After cutting and drying all these collected and sorted materials, they are again stored in the fourth store with a capacity of 170 sf2. 8.4 Sorting and Storing (With Project) We have planned to establish a new warehouse and recycling plant at Puttalam. With this effort storing and recyclable capacity of plastic would be almost double by 2020. As we have planned to collect chemical barrels and cans we need more room for sorting and storing with new the project. (See land utilization plan for more details) 9. Operations & Land Utilization (With Project) The operations is defined as the process used to deliver products and services to the customer market place and also include manufacturing, transportation, logistics, travel and after sales services. Facility is divided in two parts; Recycling and Production unit and Warehouse. The facility is located in an area of 3000 sf2. Apart from these two units there is an office which will looks for the perpetual supply of required raw materials and also take care about the outbound logistics. The production capacity with new investment will increase up to 54 Mt per month. The company will have contracted with the suppliers who can supply the raw material as quickly as we want. The raw material contains post-consumer plastic materials and post-industrial plastic materials. Since there are a variety of products being produced, the preference will be given to that product whose demand is high. All the products will not be produced each and every day. There will be different products which will be produced on different days according to the demand in the market. 21 Figure 05: Land Utilization Plan Raw Materials Inventory Washing Area Cutting Machine Chip Store Scraps Store Crusher Machine Machine Machine Machine Finished good Inventory Office 22 Machine 10. Time Targets Main Activities Duration 2017 2016 18 19 M J J A S O N D J F MA MJ J A S O N D Preparation of Project Proposal Taking legal approval from local authorities Preparation of land for X X X X construction Ordering required machines X Commence construction X Establishing electricity, water and X X X telephone X X Establishment of plants/machine And Test run X Commence the initial production X Commence the Chemical barrels recycling Establishment of plants X X 66% improvement of whole production process 100% improvement of production process 500% improvement of production process X X 11. Structure of Economic and Financial Analysis 11.1 Objective of the Report The owner of the project requested one acre of land from the Ministry of Industry and commerce in the Puttalam Industrial Zone for further expansion of his plastic recycling project, which is currently functioning at Ragama. For this purpose, the Industrial Development Division, Ministry of Industry & Commerce requested a project proposal in line with their guideline. Thus, the intention of the present study is to evaluate the cost and benefit of the present recycling 23 project activities and observe the financial and economic viability of further expansion of the project activities in the Puttalam Industrial Zone. 11.2 Instrument of Data Collection A structured questionnaire was used to facilitate the study of the present empirical position of the initial objectives of the project. The recorded and projected data was used to facilitate the study of the present empirical position of the project. Previous reports, recorded cost and income data at the project office and supportive documents have been reviewed for constructing the cost and benefit structure of the project from year 2002 to year 2015. Besides the above instruments of data collection, the bulk of the data on objectively verifiable indicators were gathered during survey through direct observation. A substantial volume of qualitative information of the project was observed through direct observation. 11.3 Methodology The methodology adopted for the cost benefit analysis of the investment is based on guideline from environmental project assessment generally recommended by Asian Development Bank and World Bank. It is based on widely accepted techniques for the appraisal of environmental based investment projects. The method provides a basis for achieving the necessary degree of uniformity and comparability between similar projects. The data used and all conclusions are based on the latest available information with a bearing on the project office at Ragama. However, reliability and consistence of the information were rechecked with field observation at each point and finally made reasonable adjustment to minimize the mismatch. 11.4 Approach The approach followed is that of a cost and benefit analysis with the emphasis on economic criteria and their impact in the national context. Consequently, elements of multi-criteria analysis such as environmental impacts and, in particular cost and benefit condition have been dealt with financial and economic validity of the project. The economic analysis described here has been carried out on the basis of comparisons of cost incurred and benefit expected “without project and with project”. With project means; with new investment of the project and without means; existing situation of the project. 24 11.5 Principles and Procedures • The economic useful life of project is twenty years • All benefits and costs have valued in constant in 2016 financial prices • The exchange rate of US$ 1.00 = Rs 150.00 • The overall economic viability of the project has been judged on the basis of four decision criteria; (a) The Financial Internal Rate of Returns (FIRR), (b) The Financial Net Present Value (FNPV) , The Cost Ratio (B/C) and Net Profit. 12. Financial Analysis – Without Project Under this section present study examines the existing financial cost and benefit stream of the project. 12.1 Cost Structure – Without Project 12.1.1 Fixed Cost (Without Project) According to recorded data, the net value of total fixed investment of the project is Rs. 20.6Million by mid of year 2016 and average variable cost is Rs 5.5 Million per year during the period of year 2002 to 2015. 12% out of total expenditure is recorded under variable cost and it consists of raw materials cost, salaries, transport, rental and other utilities. Based on year 2013 to year 2015 actual variable cost, this study has projected the project variable cost for the next 15 years in line with projected inflation rate in the country. After depreciation of fixed assets based on purchased year of relevant machine and equipment, it was possible to measure the net value of current fixed assets in year 2016 prices as follows. 25 Table 07: The Value of Fixed Cost by mid of year 2016 – Without Project Fixed Assets Land Qty Year Net value after Purchased Depreciation (Rs.M) 37 Purch 5.7 Building 3.5 Water cooling tower 1 2007 0.25 Crusher Machine 2 2007/2016 1.0 Cutter Machine 3 2007/2012 0.15 Injection Molding Machine 3 2005/2007/ 1.5 (G 180-2, G90-1) Moulds 2012 35 Vehicle 01 7.0 2011 0.5 Other Equipment 1.0 Total Value of Fixed Assets 20.6 12.1.2 Variable Cost (Without Project) Variable cost measured based on the actual expenses of last 3 years actual expenses on production process. Based on actual variable cost, the study projected the variable cost for the next 15 years in line with extrapolated inflation in the country. The total variable cost per last three years is shown in table 08 below. 26 Table 08: Total Variable Cost (Without Project) Rs/Year Type of Variable Cost 2013 2014 2015 Electricity 600,000 600,000 600,000 Transport (Fuel and related expenses) 60,000 60,000 50,000 Water 50,000 60,000 60,000 Telephone 120,000 140,000 150,000 Other Utilities 150,000 160,000 160,000 Insurances 25,000 25,000 25,000 Production Incentives 40,000 50,000 50,000 Overtime Payment 50,000 60,000 60,000 O&M 125,000 140,000 150,000 Depreciation 4,120,000 4,120,000 4,120,000 Other Expenses 100,000 100,000 100,000 Total 5,440,000 5,515,000 5,525,000 12.1.3 Labour Cost (Without Project) Table 09: Average Labour Cost per Year (Without Project) Production Supervisors 2 35,000 Monthly Expenditure for salaries 70,000 Skilled Workers 2 30,000 60,000 Unskilled Workers 4 20,000 80,000 Total 8 Type of Job No Monthly Salary Scale 190,000 Total Annual Cost on Salaries = 2,280,000.00 27 12.1.4 Raw Material Cost – Without Project Table 10: Average Cost on Raw Material (Rs/ Year) – Without Project -2015 Type of Raw Quantity Unit Price Monthly Cost on Annual Cost on Materials Purchased (Rs/Mt) Materials Materials (Rs.M) (Mt/Month) (Rs.M) ABS 9.3 65,000 604,500 7.3 PP 5.0 80,000 400,000 4.8 HDPE 0.6 50,000 30,000 0.36 PS 0.1 60,000 6,000 0.07 Total 15 12.53 Table 11: Total Cost of Production – Without Project (Rs/Year) Type of Cost 2013 2014 2015 Fixed Cost (20.6M) - - - Variable Cost 5.4 5.5 5.5 Salaries 2.28 2.28 2.28 Material Cost 12.2 12.2 12.53 Total 19.88 19.98 20.31 12.2 Returns of the Project – Without Project Without project benefit comes from plastic raw materials and plastic products. Around 75% recycled plastic is sold as raw materials and balance is used to produce various plastic items. The details of the final output are given in table 12 to 16 below. 28 12.2.1 Returns from Plastic Raw Materials – Without Project Table 12: Returns from Plastic Powder (Rs. M/year) – Without Project (Rs.) Type of Powder 2013 2014 2015 Qty (Mt) Income Qty (Mt) Income Qty (Mt) Income ABS 43.2 4.3 43.2 4.8 43.2 4.8 PP 22.8 2.2 22.8 2.3 22.8 2.3 HDPE 33.6 3.2 33.6 3.4 33.6 3.4 PS 8.4 0.9 8.4 1.0 8.4 1.0 Total 108.0 10.6 108.0 11.5 108.0 11.5 Table 13: Average Prices of Plastic Raw Materials (Rs/Mt) – Without Product Average Sold Price (Rs/.Kg) 2013 Average Sold Price (Rs/.Kg) 2014 Average Sold Price (Rs/.Kg) 2015 ABS 100 110 110 PP 95 100 100 HDPE 95 100 100 PS 110 120 120 Type of Powder 29 Table 14: Average Selling Prices of Plastic Product (Rs) Type of Product Average Sold Price Average Sold Price Average Sold Price (Rs/Unit) (Rs/Unit) Price (Rs/Unit) 2013 2014 2015 Sunk Boxes 20.0 25.0 25.0 Ceiling Roses 30.0 33.0 33.0 MCB 240.0 250.0 250.0 Round Blocks 4.00 4.00 4.00 Measuring Cups 3.00 3.00 3.00 Measuring Lids 3.00 3.00 3.00 Wesak Lanterns 25.0 25.0 25.0 Shoe heels 30.0 30.0 30.0 12.2.2 Returns from Product – Without Project Table 15: Gross income from Product (Rs/M) – Without Project Type of Product 2013 2014 Quantity Income Quantity Sunk Boxes 2500 0.05 2400 0.06 2500 0.06 Ceiling Rose 5000 0.15 6000 0.18 5000 0.16 MCB 250 0.06 350 0.08 250 0.06 Round Blocks 6000 0.02 4000 0.02 5000 0.02 Measuring Cups 300,000 0.90 250,000 0.75 3,00,000 0.9 Measuring Lids 250,000 0.75 300,000 0.9 300,000 0.9 Wesak Lanterns 155,000 3.85 150,000 3.75 150,000 3.75 Shoe heels 100,000 3.0 120,000 3.6 120,000 3.6 Total 8.78 Income 2015 9.34 30 Quantity Income 9.45 12.2.3 Total Returns – Without Project Table 16: Total Annual Gross Revenue (Rs. Million) – Without Project Revenue 2013 2014 2015 From Plastic Raw Materials 10.6 11.5 11.5 From Plastic Product 8.78 9.34 9.45 Total Gross Revenue 19.38 20.84 20.95 31 12.3 Profit and Loss Account – Without Project Table 17: Profit and Loss Account (Without Project) Particulars 2013 2014 2015 Amount (Rs.) Amount (Rs.) Amount (Rs.) Revenue Income from Plastic Raw Materials Income From Production 10,600,000 11,500,000 11,500,000 8,780,000 9,340,000 9,450,000 Total Revenue 19,380,000 20,840,000 20,950,000 Cost of Materials 12,216,750 12,216,750 12,530,000 Gross Profit 7,163,250 8,623,250 8,420,000 600,000 600,000 600,000 Transport (Fuel and related 60,000 expenses) Water 50,000 60,000 50,000 60,000 60,000 Telephone & Internet 120,000 140,000 150,000 Other Utilities 150,000 160,000 160,000 Packing (Bags) 25,000 25,000 25,000 Production Incentives 40,000 50,000 50,000 Overtime Payment 50,000 60,000 60,000 O&M 125,000 140,000 150,000 Depreciation 3,090,000 3,090,000 3,090,000 Other Expenses 100,000 100,000 100,000 Salaries and Wages 2,280,000 2,280,000 2,280,000 Total Expenses 6,690,000 6,765,000 6,775,000 Net Profit 473,250.00 1,858,250.00 1,645.000.0 Expenses Electricity 32 13. Financial Analysis – With Project 13.1 Cost Structure 13.1.1 Fixed Cost (With Project) Table 18: Fixed Cost – With Project Type of Cost Start‑up and Unit/Qty 2017 2018 2019 200,000 technical costs Land 160 Pur 16,000,000 Warehouses 25,600sf2 500,000 1.500,000 Building 6400 sf2 1,500,000 1,000,000 Water Filter Tank 300,000 Machinery Crusher Machines 4 1,500,000 1,500,000 Cutter Machines 3 75,000 150,000 Injector Molding Machine 4 Palletizer 1 Water purification Machine Cooling Plant 1 1,000,000 3,000,000 1,500,000 2,500.000 250,000 Shredder 800,000 Barrel Washing Machine 1,500,000 Other Equipments 200,000 Total Fixed Cost 21,535,000 1,250,000 10,002,500 33 100,000 250,000 13.1.2 Fixed Costs for Office Equipments (With project) Table 19: Costs for Office Equipments – Year 2017 Type of Equipment Executive Tables 2 25,000 Cost of Equipment (Rs) 50,000 Executive Chairs 2 7,500 15,000 File Cupboards 2 8,000 16,000 Office Tables 2 12,000 24,000 Visitors Chairs 5 4,500 22,500 Computers 2 85,000 170,000 Printers 2 15,000 30,000 Fax Machine 1 20,000 20,000 Telephone line 1 15,000 15,000 CCTV camera System 1 125,000 125,000 25,000 25,000 Other office items Quantity Unit Price Total 512,500 34 13.1.3 Total Variable Cost (With Project) Rs/Year Table 20: Total Variable Cost – With Project Type of Variable Cost 2017 2018 700,000 920,000 2,000,000 Transport (Fuel and related 60,000 expenses) Water - 180,000 300,000 15,000 30,000 Telephone & Internet 200,000 250,000 15,000 30,000 Electricity 180,000 Other Utilities 2019 Packing (Bags) 35,000 60,000 120,000 Production Incentives 60,000 220,800 480,000 Overtime Payment 70,000 138,000 300000 O&M 180,000 180,000 250,000 Other Expenses 100,000 150,000 250,000 Total 1,385,000 2,078,800 4,010,000 13.1.4 Labour Cost (With Project) Table 21: Labour Cost (With Project) Type of Job Production Monthly Salary 35,000 Y1 no 2 Y1 Cost Y2 Cost 840,000 Y2 No 2 840,000 Y3 No 3 Y3 on ward Cost 1,260,000 30,000 2 720,000 2 720,000 4 1,440,000 20,000 4 960,000 6 1,440,000 12 2,880,000 8 2,520,000 10 3,000,000 19 5,580,000 Supervisors Skilled Workers Unskilled Workers Total Note: Y1 = 2017, Y2 = 2018, Y3 = 2019 35 13.1.5 Cost of Raw Materials Table 22: Cost on Raw Material (Rs/ Year) – With Project – Year 2017 Type of Raw Materials ABS Quantity Required Unit Price Annual Cost on (Mt/Year) (Rs/Mt) Materials (Rs.) 186 65,000 12.09 PP 99.6 80,000 7.97 HDPE 1.2 50,000 0.06 PS 3.0 60,000 0.18 Total Cost 289.8 20.3 Table 23: Cost on Raw Material (Rs/ Year) – With Project – Year 2018 Type of Raw Materials ABS Quantity Required Unit Price Annual Cost on (Mt/Year) (Rs/Mt) Materials (Rs.) 253.2 65,000 16.45 PP 134.64 80,000 10.8 HDPE 16.8 50,000 0.84 PS 4.08 60,000 0.24 Total Cost 408.72 28.33 Table 24: Cost on Raw Material (Rs/ Year) – With Project – Year 2019 Type of Raw Materials ABS Quantity Required Unit Price Annual Cost on (Mt/Yera) (Rs/Mt) Materials (Rs.M) 244.8 65,000 15.9 PP 122.4 80,000 9.8 HDPE 424.32 50,000 21.2 PS 24.48 60,000 1.5 Total Cost 48.4 36 Table 25: Total Projected Raw Materials Cost for next 5 Years (Rs/M) Type of Raw Materials Year 2017 2018 2019 2020 2021 ABS 12.09 16.45 15.9 15.9 15.9 PP 7.97 10.8 9.8 9.8 9.8 HDPE 0.06 0.84 21.2 21.2 21.2 PS 0.18 0.24 1.5 1.5 1.5 Total 20.3 23.28 48.4 48.4 48.4 13.1.6 Total Estimated Cost – With Project Table 26: Total Estimated Cost – With Project (Rs.M/Year) Type of Cost Year Y1 Y2 Y3 Y4 Y5 Fixed Cost (Including office equipment) Variable Cost 21.5 1.76 10.0 - - 1.38 2.09 4.01 4.01 4.01 Salaries 2.52 3.0 5.58 5.58 5.58 Material Cost 20.3 23.28 48.4 48.4 48.4 Total 45.7 29.62 67.99 57.99 57.99 13.2 Benefits of the Project The benefits generated by this project can be divided into categories such as direct financial benefit and indirect environmental benefits depending on the time period involved and the nature of the benefits. If the time period is taken into account, then the benefits generated by the project could be related to short term and long term benefits, individually. Apart from this, benefits can be looked into under the basis of financial criteria and /or economic criteria. The sate of recycled plastic powder which is the final output and different types of products we produced using plastic powder creates direct and immediate financial benefits.. In this study, attention has been paid to the assessment of environmental or economic benefits also, 37 since this type of project are be focused on economic and environmental impacts rather than financial benefits. However, long term sustainability of the project depends on their financial profitability. Thus this study has done micro level financial analysis while observing the environmental impact as well. 13.2.1 Returns from Plastic Product – With Project Table 27: Gross income from Plastic Products (Rs) – With Project Type of Product Sunk Boxes Ceiling Rose Round Block Measuring Cup Measuring Lids Wesak Lanterns Flower Pots Bottle Crate Plastic Household items Shoe heels Total 2017 2018 2019 2020 Quantity Income Quantity Income Quantity Income Per/Month (Rs.M/) (Rs.M) (Rs.M) 2,500 0.75 7,500 2.25 15,000 4.725 Quantity Income (Rs.M) 15,000 4.725 5,000 1.9 15,000 5.9 30,000 12.4 30,000 12.4 10,000 0.48 30,000 1.4 60,000 2.9 60,000 2.9 16,600 0.6 50,000 1.8 100,000 3.8 100,000 3.8 16,600 0.6 50,000 1.8 100,000 3.8 100,000 3.8 2,700 0.97 8,000 2.9 16,000 6.1 16,000 6.1 3,750 2.92 11,250 8.75 22,500 19.0 22,500 19.0 8,00 1.45 2,500 4.5 5,000 9.5 5,000 9.5 6,650 4.0 20,000 12.0 40,000 25.0 40,000 25.0 6,600 2.4 20,000 7.2 40,000 15.2 40,000 15.2 13.67 48.5 38 102.4 102.4 Table 28: Average Selling Prices of Plastic Products (Rs) – With Project Type of Product Average Sold Price Average Sold Price Average Sold Price (Rs/Unit) (Rs/Unit) Price (Rs/Unit) 2017 2018 2019 Sunk Boxes 25.0 25.0 25.0 Ceiling Rose 33.0 33.0 33.0 MCB 250.0 250.0 250.0 Round Blocks 4.00 4.00 4.00 Measuring Cups 3.00 3.00 3.00 Measuring Lids 3.00 3.00 3.00 Wesak Lanterns 25.0 25.0 25.0 Flower Pots 65.0 65.0 65.0 Bottle Crates 150.0 150.0 150.0 Plastic Household items Shoe heels 50.0 50.0 50.0 30.0 30.0 30.0 Note: As a marketing strategy, the company maintainthe same prices for their products until 2020. 13.2.2 Returns from Plastic Raw Materials Table 29: Financial Benefit of Plastic Powder – With Project (Rs.) Type of Powder 2017 Qty (mt) Income 2018 2019 Qty (Mt) Income Qty (Mt) Income (Rs.M) ABS 66.96 7.4 91.2 10.0 87.6 10.1 PP 36.0 3.6 49.2 4.92 43.2 4.5 HDPE 51.84 5.2 70.8 7.08 151.2 15.9 PS 12.96 1.5 18 2.16 9.36 1.2 Total 167.76 17.7 229.2 24.16 291.36 31.7 39 Table 30: Average Prices of Plastic Powder (Rs/Kg) – With Project Type Powder of ABS Average Sold Price 2017 110 Average Sold Price 2018 110 Average Sold Price 2019 115 Average Sold Price 2020 120 Average Sold Price 2021 120 PP 100 100 105 110 110 HDPE 100 100 105 110 110 PS 120 120 125 130 130 11.2.3 Total Annual Revenue – With Project Table 31: Total Annual Gross Revenue (Rs. Million) – With Project Revenue 2017 2018 2019 From Plastic Powder 17.7 24.16 31.7 From Plastic Product 13.67 48.5 102.4 Total Gross Revenue 31.37 72.66 134.1 40 13.3 Profit and Loss Account – With Project Table 32: Profit and Loss Account (With Project) Particulars 2017 Amount (Rs.) 2018 Amount (Rs.) 2019 Amount (Rs.) 2020 Amount (Rs.) 2021 Amount (Rs.) Income from Plastic Raw Materials Income From Production Total Revenue 17,700,000 24,160,000 31,700,000 31,700,000 31,700,000 13,670,000 48,500,000 102,400,000 102,400,000 102,400,000 31,370,000 72,660,000 134,100,000 134,100,000 134,100,000 Cost of Materials 15,250,000 23,280,000 43,500,000 43,500,000 43,500,000 Gross Profit 16,120,000 49,380,000 90,600,000 90,600,000 90,600,000 Electricity 700,000 920,000 2,000,000 2,000,000 2,000,000 Transport (Fuel and related expenses) Water 60,000 180,000 300,000 300,000 300,000 100,000 150,000 200,000 200,000 200,000 Telephone & Internet Other Utilities 180,000 200,000 250,000 250,000 250,000 200,000 250,000 300,000 300,000 300,000 Packing (Bags) 35,000 60,000 120,000 120,000 120,000 Production Incentives Overtime Payment 60,000 220,800 480,000 480,000 480,000 70,000 138,000 300,000 300,000 300,000 O&M 180,000 180,000 250,000 250,000 250,000 Other Expenses 100,000 150,000 250,000 250,000 250,000 Depreciation 8,130,000 8,682,000 8,079,000 10,680,000 10,680,000 Salaries and Wages 2,520,000 3,000,000 5,580,000 5,580,000 5,580,000 Revenue Expenses Total Expenses 12,335,000 14,130,800 18,109,900 20,710,000 20,710,000 Net Profit 3,784,500 35,249,200 72,490,100 69,890,000 69,890,000 41 13.4 Cash Inflow and Outflow of the Project Table 33: Projected Cash Inflow and Outflow of the Proposed Project Time 1 2 3 4 5 6 7 8 Income from Plastic Raw Materials Income from Products Total Inflow 17.7 24.2 31.7 31.7 31.7 31.7 31.7 31.7 13.67 48.05 102.4 102.4 102.4 102.4 102.4 102.4 31.37 72.25 134.1 134.1 134.1 134.1 134.1 134.1 Fixed Cost 42.1 1.2 10.0 With New Investment Without New Investment Total Variable Cost with New Investment Running Expenses Salaries 21.5 1.2 10.0 20.6 - - 24.2 28.37 57.99 57.99 57.99 57.99 57.99 57.99 1.38 2.09 4.01 4.01 4.01 4.01 4.01 4.01 2.52 3.0 5.58 5.58 5.58 5.58 5.58 5.58 Raw Materials 20.3 23.28 48.4 48.4 48.4 48.4 48.4 48.4 O&M 0.18 0.18 0.25 0.25 0.25 0.25 0.25 0.25 Replacement Cost Total Outflow Net Cash Inflow 39.5 66.48 59.37 68,24 58.24 58.24 97.94 58.24 58.24 -35.11 12.88 65.86 75.86 75.86 36.16 75.86 75.86 42 14. Economic Analysis 14.1 Foreign Exchange Saving About 250,000 tons of plastic raw materials and products are imported into the country every year. Out of this, 30% have been exported as finished product and the remaining are used in the local market. The entire primary materials (pallets) for producing polythene bags and lunch sheets were imported at the beginning of the plastic industry in Sri Lanka. However, at present a noticeable amount of pallets are produced in Sri Lanka through the recycling of waste polythene materials. However, the importation of primary material of polythene has been continuing at an increased rate during the last three decades. The increasing amounts of polythene raw materials are indicative of the increasing trend of polythene bags and lunch usage in the country With project, one of the major incremental net benefits is the net foreign saving on plastic and polythene raw material imports. This proposed project has planned to recycle plastic chemical barrels and finally produce plastic powder which could be substituted for imported plastic virgin. Total financial value of recycled quantity under project is exactly equal to the net incremental benefit from the project since in without project that output becomes zero value. Table no 34 shows the financial value of net foreign savings due to new investments. However, the foreign savings due to project is not included to the IRR, NPV and B/C ratio calculation. Table 34: The Financial Value of Import Saving Year Projected Recycled Net Foreign Quantity Saving (Mt/Year) (Rs. M/Year)) 2017 240 26.4 2018 324 35.64 2019 648 71.28 2020 648 71.28 2021 648 71.28 2022 648 71.28 Source: Author computation based on survey data - 2015 14.2 Environmental Benefit of the Project Incinerating and landfilling of plastics and polythene at its end-of-life has associated numeral environmental disadvantages. Thus, applying “natural capital valuation” techniques allow these impacts to be expressed in monitory terms, reflecting the scale of damage caused (UNEP, 2015). 43 The overall value or “natural capital cost” gives indications of the financial cost to companies were to internalize impacts associated with their current practices. These costs can also be factored into business and investment decision making. In order to quantify the natural capital cost of the impacts of plastic, the high-level methodology follows six steps: sector selection, plastic use quantification, scope and boundary selection, impact quantification, and natural capital valuation and application (Johnson, 2015). Thus this study does not apply all those steps to measure natural capital valuation of plastic due to the absence of robust data and scientific research. However, the report briefly examines the environmental impacts of the recycling process of plastic as follows. Generally there are three types of plastics such as Plastic-in-product, plastic-in-packaging and plastic-in-supply-chain. Plastic-in-product includes the quantity of plastics directly used in the product, as well as any losses that were incurred during the manufacturing process. Plastic-inpacking includes the quantity of plastic directly used in the packaging of the product as well as any losses that were incurred during the packaging of the product. Plastic-in-supply-chain includes the quantity of plastic used indirectly by consumer goods businesses via their supply chain. According to the United Nations Environmental Programe (UNEP), 2015 overall, global weighted average of plastic-in-packaging used in the consumer goods industry is 2 tons per $1m revenue; of plastic-in-product 2 tons per $1m revenue; and of plastic-in-supply-chain 4 tons per $1m revenue. This indicates that for every $1m in revenue in the consumer goods industry, 8 tons of plastics are consumed. The expected target of this project is to recycle 648 ton of postconsumer and post-industrial plastics. Otherwise all these plastics could cause damage to the whole society. Thus, this project could be reasonably justifiable as an environmentally viable project. 14.3 Cash Inflow and Outflow of the Project The economic analysis was carried out by comparing all costs that have been already made and required in the future to further extend and operate the project with the revenues generated by the project once in operation. Cost and benefit over the analysis period of 15 years have been calculated in financial terms. Table E-1 to E-4 in Annex – 1 shows the total economic net benefits which will be developed From Rs. -35.0 million in the year 2017 to Rs. 75.0 million in the final year 2031. The bulk of the benefits will be in year 2019. The cash flow becomes 44 positive from the year 2018 onwards, indicating that the project benefits will be able to offset capital expenditure. 14.4 Economic Internal Rate of Return The IRR is calculated for the project in table E1 to E4 in Annex 1 and summarized in table 35. It indicates that the base case ratio stands at 111% and it is over and well above the social rate of interest of cost of capital for environmental protection project, because the project produces significant immeasurable environmental impacts to the country. Base case only considers the financial returns from the project. With positive environmental impacts of the plastic recycling process the EIRR would be further increased and it will be over and well above the social rate of interest. However the study does not measure the environmental impacts in monitory terms while the study measures the macro economic impacts of the project with the help of foreign savings. The results of both scenarios are summarized in table 35.In both scenarios B/C ratio is above one which indicates that the project will provide more benefits than cost. Table 35: Internal Rate of Returns and NPV of the Proposed Project Scenarios Description EIRR B/C Ratio ENPV 01 Only with financial Benefits 111% 2.37 199.39 (Base Case) 02 Base Case + Foreign savings of 392% 3.18 652.6 the project Note: Opportunity cost of capital is 20% 15 Sensitivity and Risk Analysis In order to demonstrate the sensitivity of the project to changing parameters influencing benefits as well as cost, the study applies sensitivity analysis. The results are presented in table no 36. 45 Table 36: Sensitivity Analysis Scenarios Description Base Case Benefits include, value of plastic powder and plastic product 2 Base case+ Foreign Saving 3 Base case + all cost increased by 50% 4 Base case+ all revenue reduce by 50% Note: Opportunity cost of capital is 20% EIRR 111% ENPV (Net Cash flow) Rs. M 199.39 B/C Ratio 2.37 392% 94% 652.6 60.20 3.182 1.64 41% 55.34 1.18 Sensitivity tests were performed to assess the impact of variations in incremental cost and benefit streams on the project viability. The results depicted that, without foreign savings , the EIRR is 111% and it is over and above the standard level. Further, if project cost including materials and management increased by 50%, while without changing the cash inflow, the IRR will reduce to 94%. If project cash inflow reduces by 50%, while without changing the cost structure, the IRR is 41% and it is still over and above the standard level. These are the possible risks and uncertainties of the project with present financial returns. Thus, all those switching values suggest that the project is economically and financially attractive project. Investor as well as country will gain more benefits from the new investment. 16. Conclusions and Recommendations 16.1 Conclusion All these decision criteria presented and discussed above, indicate that a financing of the plastic recycling Project would be highly justified in both financial and economic terms. Besides, with an environmental point of view, the project is highly viable. However, it is important to emphasize that, this type of project should be focused more on social and environmental impacts rather than the financial returns. Policy makers need to be concerned about the economic viability rather than financial viability. 46 16.2 Recommendation As the project is economically and financially justified, this study proposed to the further extension of project activities with the support of the local government It was observed that the existing recording, monitoring and evaluation process of the project needs to be restructured with relevant human capital for the betterment of the project. Prepared by Dr. A. Aruna Shantha , Senior Lecturer in Economics PhD in Business Economics (Malaysia), MSc in Environmental Economics ( Peradeniya), MSc in Economics (U.K) , BA Hons in Economics (Kelaniya), CTHE, (U.K) Department of Economics & Statistics Sabaragamuwa University of Sri Lanka 2016.07.06 47 References CEA, Central Environmental Authority (2007, 2008, 2009,2010,2011,2012,2013,2014.). Annual Repor. Colombo.: Ministry of Environmental and Natural Resources. Dangalla, N., Chandrasena, U., Semasingha, W., & Amarasingha, A. (2013). Report of the Survey on the Usage of Polythene Shopping bags and Lunch Sheets in Sri Lanka - Case studies of five Selected Municipal Council. Colombo: Central Environment Authority of Sri Lanka. Galie, F., & Trabucchi, C. (2013, 03 20). World Polymers Outlook. Retrieved 01 20, 2016, from http://img.en25.com/Web/ICIC Johnson, J. (2015, 08 02). http://www.plasticsnews.com. Retrieved 02 20, 2016, from reportplastic-production in creasing - but-recyling-falling-behind. Jones, K. (2015). Increasing Engagement in the HDPE recycling Value Chain in the United States, Master Degree Programme. Duka University. Oehlmann, J. (2009). Critical Analysis of the Biological Impacts of Plasticizers on Wildlife. Journal of industrial ecology , 15(217-227), 217-227. Rosalia, C. (2012). Sustainability of bio-based plastics: general Comparative Analysis and Recommondation for Improvement. Journal of Cleaner Production , 23(2), 47-56. Thompson, R., Moore, C., Vom Saal, F., & Swan, S. (2009). Plastic, The Environment and Human Health: Current Consensus and Future Trends . Biological Sciences, 364(1526), 2153-2166. UNEP. (2014). Valuing Plastic - The Business case for Measuring, Managing and Disclosing plastic use in the consumer good industry. Norway: Marine Litter (GMPC). Yatawara, D. (2013, 06 30). Sunday Obsever. Retrieved 01 19, 2016, from www.http//.sundar observer.lk. 48 Contents Executive Summary ........................................................................................................................ 1 1. Industry and Marketplace Analysis ............................................................................................ 2 1.1 Global Context ...................................................................................................................... 2 1.2 Local Context ........................................................................................................................ 2 1.3 Environmental Issues ............................................................................................................ 2 2. Industry Profile ........................................................................................................................... 3 2.1 Background of the Company................................................................................................. 3 2.2 Existing Management Structure ............................................................................................ 4 2.3 Further Expansion of the Business ........................................................................................ 6 2.4 Need Analysis for Proposed Project ..................................................................................... 6 3. Technical Information ................................................................................................................. 7 3.1 Types of plastics .................................................................................................................... 7 4. Production Process ...................................................................................................................... 9 4.1 Collection of waste plastic .................................................................................................... 9 4.2 Storage................................................................................................................................... 9 4.3 Sorting and identification .................................................................................................... 10 4.4 Washing............................................................................................................................... 10 4.5 Cutting ................................................................................................................................. 11 4.6 Shredding ............................................................................................................................ 11 4.7 Extrusion / Palletisation ...................................................................................................... 11 4.8 Fabrication into end Product ............................................................................................... 11 5. Employment Generation of the Project ................................................................................. 12 6. With and Without Situation of the Project ................................................................................ 13 6.1 Scope of Operations (With and Without Project) ............................................................... 13 6.2 Existing Production Capacity (Without Project) ................................................................. 13 49 6.3 Production Capacity With New Investment (With Project) ................................................ 14 7. Sales and Distribution System – With Project .......................................................................... 14 7.1 Target Market Segments ..................................................................................................... 14 7.2 Distribution Strategy ........................................................................................................... 14 7.3 Advertising & Promotion Strategy...................................................................................... 16 7.4 Sales Strategy ...................................................................................................................... 16 7.5 Marketing Strategy .............................................................................................................. 16 7.6 Market Comparison ............................................................................................................. 17 7.7 Competitor Analysis ............................................................................................................ 17 8. Supply Chain (Post- Consumer and Post-Industrial Plastic) .................................................... 18 8.1 Supply Chain - Without Project .......................................................................................... 18 8.2 Supply Chain (With project) ............................................................................................... 20 8.3 Sorting and storing facilities (Without Project) .................................................................. 21 8.4 Sorting and Storing (With Project) ..................................................................................... 21 9. Operations & Land Utilization (With Project).......................................................................... 21 10. Time Targets ........................................................................................................................... 23 11. Structure of Economic and Financial Analysis ....................................................................... 23 11.1 Objective of the Report ..................................................................................................... 23 11.2 Instrument of Data Collection ........................................................................................... 24 11.3 Methodology ..................................................................................................................... 24 11.4 Approach ........................................................................................................................... 24 11.5 Principles and Procedures ................................................................................................. 25 12. Financial Analysis – Without Project ..................................................................................... 25 12.1 Cost Structure – Without Project ...................................................................................... 25 12.1.1 Fixed Cost (Without Project) ...................................................................................... 25 12.1.2 Variable Cost (Without Project) ................................................................................. 26 12.1.3 Labour Cost (Without Project) ................................................................................... 27 12.1.4 Raw Material Cost – Without Project......................................................................... 28 12.2 Returns of the Project – Without Project ......................................................................... 28 12.2.1 Returns from Plastic Powder – Without Project ......................................................... 29 12.2.2 Returns from Product – Without Project ................................................................... 30 50 12.2.3 Total Returns – Without Project ................................................................................. 31 12.3 Profit and Loss Account – Without Project ..................................................................... 32 13. Financial Analysis – With Project .......................................................................................... 33 13.1 Cost Structure .................................................................................................................... 33 13.1.1 Fixed Cost (With Project) ........................................................................................... 33 13.1.2 Fixed Costs for Office Equipments (With project) .................................................... 34 13.1.3 Total Variable Cost (With Project) Rs/Year............................................................... 35 13.1.4 Labour Cost (With Project) ........................................................................................ 35 13.1.5 Cost of Raw Materials ............................................................................................... 36 13.1.6 Total Estimated Cost – With Project .......................................................................... 37 13.2 Benefits of the Project ...................................................................................................... 37 13.2.1 Returns from Plastic Product – With Project............................................................. 38 13.2.2 Returns from Plastic Raw Materials .......................................................................... 39 11.2.3 Total Annual Revenue – With Project ....................................................................... 40 13.3 Profit and Loss Account – With Project........................................................................... 41 13.4 Cash Inflow and Outflow of the Project........................................................................... 42 14. Economic Analysis ................................................................................................................. 43 14.1 Foreign Exchange Saving................................................................................................. 43 14.2 Environmental Benefit of the Project ................................................................................ 43 14.3 Cash Inflow and Outflow of the Project............................................................................ 44 14.4 Economic Internal Rate of Return ..................................................................................... 45 15 Sensitivity and Risk Analysis ................................................................................................. 45 16. Conclusions and Recommendations ....................................................................................... 46 16.1 Conclusion......................................................................................................................... 46 16.2 Recommendation ............................................................................................................... 47 References .................................................................................................................................... 48 APPENDIX 1 - IRR and NPV Calculation 51 LIST OF TABLES Table Page Table: 01 Summary of Company Profile 04 Table: 02 Types of Plastics 07 Table: 03 Employment Generation of the Project 12 Table: 04 Recycling Capacity of Plastics – With Project and Without Project 13 Table: 05 Monthly Average Plastic Collections 20 Table: 06 With Project Productivity Improvement 20 Table: 07 The Value of Fixed Assets by Mid of Year 2016 26 Table: 08 Total variable Cost (Without Project) 27 Table: 09 Labour Cost (Without Project) 27 Table: 10 Average Cost on Raw Material (Without Project) 28 Table: 11 Total Cost of Production (Without Project) 28 Table: 12 Returns from Plastics Raw Materials 29 Table: 13 Average prices of Plastic Raw Materials 29 Table: 14 Average selling Prices of Plastic Products 30 Table: 15 Gross Income from Product – Without Project 30 Table: 16 Total Annual Gross Revenue – Without Project 31 Table: 17 Profit and Loss Account (Without Project) 32 Table: 18 Fixed Cost – With Project 33 Table: 19 Cost of Office Equipments 34 Table: 20 Total variable Cost – With Project 35 Table: 21 Labour Cost – With Project 35 Table: 22 Cost on raw Materials – With Project (2017) 36 Table: 23 Cost on raw Materials – With Project (2018) 36 Table: 24 Cost on raw Materials – With Project (2019) 36 Table: 25 Total Projected Raw Materials cost for next 5 years 37 Table: 26 Total Estimated Cost – With Project 37 Table: 27 Gross Income from Plastic Products – With Project 38 Table: 28 Average Selling Prices of Plastic Products 39 52 Table: 29 Financial Benefit of Plastic Raw Materials – With Project 39 Table: 30 Average Prices of Plastic Raw Materials 40 Table: 31 Total Annual Gross Revenue 40 Table: 32 Profit and Loss Account – With Profit 42 Table: 33 Projected Cash Inflow and Outflow of the Proposed Project 42 Table: 34 The Financial value of Import Savings 43 Table: 35 Internal Rate of Returns and NPV of the Proposed Project 45 Table: 36 Sensitivity Analysis 46 53 View publication stats