Establishment of Community Level Multiple Oil Extraction
1
st
Draft
Pre-Feasibility Study
(SERVICES SECTOR)
Establishment of Community Level Multiple Oil Extraction
Facility
PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABAD
MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH
Government of Pakistan www.parc.gov.pk
February 13, 2014
1
Contents
2
List of Tables
Table 1. Project Economics ………………………………………………………………………….…8
Table 2. Project Financing ……………………………………………………………………………...9
Table 3: Project Cost ……………………………………………………………………………………9
Table 4: Land Requirement ……………………………………………………………………………10
Table 5: Machinery and Equipment …………………………………………………………………...10
Table 6: Human Resource Requirement ……………………………………………………………….11
Table 7: Oilseeds Processing …………………………………………………………………………..11
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1. DISCLAIMER
This information memorandum is to introduce the subject matter and provide a general idea and information on the said subject. Although, the material included in this document is based on data / information gathered from various reliable sources; however, it is based upon certain assumptions which may differ from case to case. The information has been provided on an ‘as is where is’ basis without any warranties or assertions as to the correctness or soundness thereof.
Although, due care and diligence has been taken to compile this document, the contained information may vary due to any change in any of the concerned factors, and the actual results may differ substantially from the presented information. PARC, its employees or agents do not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. The contained information does not preclude any further professional advice. The prospective user of this memorandum is encouraged to carry out additional diligence and gather any information which is necessary for making an informed decision; including taking professional advice from a qualified consultant / technical expert before taking any decision to act upon the information .
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2. PURPOSE OF THE DOCUMENT
The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs in project identification for investment. The project pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document/study covers various aspects of project concept development, start-up, and production, marketing, finance and business management. The document also provides sectoral information, brief on government policies and international scenario, which have some bearing on the project itself. The purpose of this document is to facilitate potential investors in banana tissue culture by providing them a holistic as well as a micro view of business with the hope that such information as provided herein will help the potential investors in crucial investment decisions. The need to come up with pre-feasibility reports for undocumented or minimally documented sectors attains greater imminence as the research that precedes such reports reveal certain thumbs of rules; best practices developed by existing enterprises by trial and error, and certain industrial norms that become a guiding source regarding various aspects of business set-up and it’s successful management. Apart from carefully studying the whole document one must consider critical aspects provided later on, which form basis of any Investment Decision.
3. INTRODUCTION TO SCHEME
‘Prime Minister’s Youth Business Loan’ program , for young entrepreneurs, with an allocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide subsidized financing at 8% mark-up per annum for one hundred thousand (100,000) beneficiaries, through designated financial institutions, initially by the National Bank of Pakistan (NBP) and the First Women
Bank Ltd. (FWBL). Small business loans upto 2 million with tenure up to 8 years, inclusive of a
1 year grace-period and a debt : equity of 90: 10 will be disbursed to SME beneficiaries across
Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwah, Balochistan, Gilgit Baltistan, Azad
Jammu & Kashmir and Federally Administered Tribal Areas (FATA).
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4. EXECUTIVE SUMMARY
The project conceived here envisages establishment of an oil extraction unit with a capacity to provide a paid facility for processing olive fruit and other oilseeds such as rapeseed, mustard, sesame, sunflower and canola for catering their domestic edible oil need near to their doorstep.
The project, which is proposed to be located in olive growing areas of Khyber Pakhtunkhwa, is likely to cost about 1.500 million and earns attractive return.
The cost of the project and return on the establishment worked out here are tentative and subject to variation depending upon its location and level of fluctuations in the prices of capital inputs, operational inputs and final product. These tentative figures will however, be firmed up at the time of appraisal of project by the financial agency when a sponsor submits his request for financing the unit.
5. BRIEF DESCRIPTION OF PROJECT
Prospect for establishment of a small-scale edible oil extraction facility for processing the peoples ‘fresh harvested olive fruit and other oilseed son payment, the product and byproduct such as oil and cake, to be used for food cooking and as an animal feed.
Oilseeds Processing Technology : The small-scale oilseeds processing technology is readily available in the country.
Location : The proposed business can be done in Potohar region, Khyber Pakhtunkhwa,
Balochistan, and Northern Areas of Pakistan. The unit will be installed at a location convenient to community in the vicinity to easily bring their fresh olive fruit and other oilseeds especially rapeseed, canola, and sesame processing for edible oil.
Target Market : The local communities are encouraged to grow more olive fruit and oilseeds for catering their edible oil needs. In addition to their domestic edible oil needs, they will be able to feed their animals with the production of byproduct i.e. cake.
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Employment Generation : The proposed project will provide direct employment to at least four people.
6. CRITICAL FACTORS
Individuals considering entering the oil extraction business must carefully consider the following factors: a) Technical expertise about effective operation and running of plant machinery and equipment b) Repair & maintenance of plant, availability of spare parts and accessories c) Availability of utilities especially electricity; interrupted power supply is very critical d) Liaison with ender users of this facility e) Availability of skilled manpower f) Expertise to optimize the returns
7. INSTALLED AND OPERATIONAL CAPACITIES
For this project, it is assumed that the oil extraction facility will start immediately after the installation of both the units. Average output capacities of olive fruit processing unit and oil expeller will be about 35 and 40 kg per hour, respectively.
Total Operational Cost: the operational cost of oil expellers estimated as Rs. 8.1 per kilogram of oilseeds. The detail of fixed and total operational costs worked out based on some assumption is given as annexure-I & II.
The proposed unit will be consisting of Oil Expeller, Control Panel for units with three phase
WAPDA connection, accessories such as weighing scale, fruit washing trays, waste storage drum and tub, oil measuring beaker, and outlet oil container etc..
8. GEOGHRAPHICAL POTENTIAL FOR INVESTMENT
The geographical area for oilseeds is the whole country but the focused area for proposed project is Khyber Pakhtunkhwa and FATA.
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9. POTENTIAL TARGET MARKET
The potential target market is not very much critical her. The designed project will create a service facility for oilseeds growers and/or domestic users located in the vicinity. The owner will extend this service to the people for processing their fruit of seed for edible oil extraction on payment.
10. PRODUCTION PROCESS FLOW CHARTS
Oilseeds
Processing
Cleaning
Crushing cum squeezing
Repeat squeezing
3-4 times
Oil Extraction
Cake collection
11. OILSEEDS PROCESSING
Cleaning : It is a process of removing the inert materials and impurities from the input seed manually or mechanically. It is assumed here that the seed brought for crushing has already been clean by the user. This facility can also be extended at project site with some extra charges.
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Crushing cum Squeezing: The input seed is fed to the crusher through the hopper. The seed is pushed through the edges of moving crusher cum squeezer worm against the stationary concave, where the oil flows through the underneath holes of the concave into the oil collection tray.
Repeat Squeezing Process : The whole squeezing process is repeated three to four times(3-4 passes). The logic behind the repeating mechanism is to get the maximum output oil through crushing of input seed.
Oil collection : The output crude oils collected into the underneath oil collecting tank, from where it is collected and shifted to the owner’s oil transporting pot or oilcan. The instant filtering is done with ordinary cotton cloth. The refining is the responsibility of the owner of output oil before its use as edible oil at home or shelf keeping.
Oil Refining Process : the ordinary oil refining process is very simple and cheap. The output oil is kept in a settling tank or pot for one week or so. The waste material and any other suspension is naturally settled down through sedimentation process leaving a clean oil film on the top. The clean oil is poured down from the top.
12. PROJECT COST SUMMARY
12.1: Project Economics
All the figures in this financial model have been calculated for establishing community level oil extraction facility. The following table shows internal rate of return, payback period and net present value of the investment.
Table 1: Project Economics
Description
Internal Rate of Return
Pay Back Periods (Years)
Net Present Value(NPV)
Benefit-Cost Ratio
Detail
60%
2.17819
$7,068,247
2.4353
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12.2: Project Financing
Following table provides details of the equity required and variables related to bank loan;
Table 2: Project Financing
Description
Total own equity (10%)
Bank Loan (90%)
Markup to the Borrower(%age/annum)
Tenure of the loan
Grace Period(years)
Details
129,050
1,290,500
8%
8
1
The above table shows that the bank will provide the loan of amount of worth Rs.1,290,500/ owner having the equity in Rs.129, 050/. The owner will be paid 8% Mark up of the borrowing amount .
12. 3: Project Cost
Following requirements have been identified for operations of the proposed business.
Table 3: Project Cost
Capital Investment
Machinery and Equipment installation
Amount(Rs.)
250,000
Pre Operating Cost
Office Furniture
Total Capital Cost
Initial Working Capital
Total Project Cost
25,000
25000
300,000
990,500
1,290,500
12.4: Space Requirement
The project will be run after the installation of plant machinery (oil expeller) in an owned and/or a rental shop/shed roughly covering an area of 20’ x 20’. The office/service shop will be located in the suitable place of village or town whichever is convenient for the entrepreneur. If he has the surplus money to buy some oilseeds for marketing oil during the free time of plant operation other than rental/paid services. Then the space requirement for storage of raw seed would be required.
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Table 4: Land Requirement
Area Required
Store Room/Shed
Total Rent
Area(Sq.ft)
20’ x 20’
Monthly Rent
Charges(Rs.)
10,000
10,000
Yearly Rent(Rs.)
120,000
120,000
12.5: Machinery and Equipment
Following table provides list of machinery and equipment required for the establishing at community oil extraction facility. The plant machinery and equipment is mainly consisting of oil expeller and operational accessories. The total cost of machinery and equipment is estimated Rs.
1.100 million.
Description
Oil expeller unit
Accessories
Installation cost
Total
Table 5: Machinery and Equipment
Qty.
Cost Rs/Unit
1
LS
200,00
25
12. 6: Raw Material Requirements
Estimate cost
(Pak Rs.)
200,000
25000
25000
250,000
Oilseeds (Rapeseed/Mustard, Canola, and Sunflower): the major oilseed crops such as
Rapeseed/Mustard, Canola, and Sunflower were grown on an area of 0.575, 0.877, and 0.027 million hectares with production of 0.203, 0.473, and 0.030 million tons during the year 2011-
12(Economic Survey 2012-13).Generally, farmers grow some rapeseed/mustard and other oilseeds for boosting up their domestic oil needs.
12.7: Human Resource Requirement
Manpower: The proposed project will create employment opportunities as per following for running the project during operation.
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Table 6. Human Resource Requirement
Description
Unit Operator/Owner
Helper(feeding, washing etc.)
Total
12.8: Revenue Generation
Nos.
1
1
2
Salary per employee per
(Rs.)month
15,000
10,000
Table 7. Oilseeds Processing
Description
Average Capacity of Extractor
Annual Use
Efficiency
Operational cost
Processing charges
Total Earnings
Total Operational Expenses
Gross Profit kg/h hrs
%
Rs/kg
Rs/kg of fresh fruit
Rs/Year
Rs/Year
Rs/Year
13. CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS
1.
M/s Technology International
P-29, St # 5-6, Main TalianWala Road, Rehman Colony
124_J.B.,Marzipura, Opp. SuriyaMajeed Hospital,
Faisalabad – Pakistan
Tel: 041-2591157, 2695716, 2695761
Cell: 03009384508
Email: techintl@cyber.net.pk
2.
M/s Yousaf Engineering
Reman Dang WaliGalli, Maqbool Road,
Faisalabad – Pakistan
Cell: 03018651191
Email:
Prepared By:
LIAQAT ALI SHAHID
Principal Engineer/PSO
Agricultural and Biological Engineering Institute
Unit
Salary/Year
180,000
120,000
300,000
40
1500
70%
8.1
25
1500000
486000
1014000
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Checked By :
National Agricultural Research Centre
Islamabad
Tel: 051-8443610
Email: shahidfmi@hotmail.com
DR. TANVEER AHMAD
Director/PSO
Agricultural and Biological Engineering Institute
National Agricultural Research Centre
Islamabad
Tel: 051-9255044
Email: tanveer_isd@yahoo.com
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14. ANNEXURES
DETAILED OPERATIONAL COST CALCULATIONS ARE GIVEN AS UNDER
OIL EXPELLER
Annexure-I
Table 1 Fixed Cost of Oil Expeller
S. No. Description Oil Extraction Unit
3
4
5
1
2
1
2
3
4
5
Purchase price
Useful life (Yrs)
Yearly use (hrs)
Salvage value
(10 % of P*)
Interest Rate in decimal
Fixed Cost (Rs/h)
Depreciation
(D = (P-S)/L)
Interest on Investment
(I = (P + S)/(2)*i/Yearly use in hours)
Taxes, Insurance & Shelter
(0.5 % of initial investment)
Repair & Maintenance
0.25 % of P/100 hrs)
Total Fixed Cost (Rs/h)
200,000
10
1500
20,000
0.1
1
5
25
12
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Annexure-II
Table 2 Total Operational Cost of Oil Expeller
B.
1
2
3
S. No. Parameters
1 Machine capacity
2
3
A.
Fuel consumption (Electricity)
Labour requirement i. Unskilled ii Skilled
Fixed cost
C
D
Variable cost
Labour cost i. Unskilled @Rs. 42/h ii Semi-Skilled @Rs. 62/h
Fuel cost (Electricity @Rs.18/kwh)
Lubrication cost
(@5% of fuel cost)
Total Operational Cost
Total Operational Cost
Rs/h
Rs/h
Rs/h
Rs/h
Units kg/h kwh men-hrs
"
"
Rs/h
Rs/h
Rs/kg
246
104
42
62
135
7
Quantity
40
7.5
3.00
1.50
1.50
25
254
8.1
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14.1: Income Statement of the Project
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Sales (Revenues) 1500000 1650000 1815000 1996500 2196150 2415765 2657342 2923076 3215383 3536922
Total Operating Charges of Service 486,000 534,600 588,060 646,866 711,553 782,708 860,979 947,077 1,041,784 1,145,963
Cost of Service Provided 486,000 534,600 588,060 646,866 711,553 782,708 860,979 947,077 1,041,784 1,145,963
Gross Profit
Salaries
Rent
Utilities
Insurance
Advertising
Depreciation
Other Office Expenditure
Others
Interest on Loan
Sub - Total
Operating Income
Tax
Net Income
1,014,000 1,115,400 1,226,940 1,349,634 1,484,597 1,633,057 1,796,363 1,975,999 2,173,599 2,390,959
300,000 330,000 363,000 399,300 439,230 483,153 531,468 584,615 643,077 707,384
120,000 132,000 145,200 159,720 175,692 193,261 212,587 233,846 257,231
25,000 27,500 30,250 33,275 36,603 40,263 44,289 48,718 53,590
282,954
58,949
22,500
0
12,000
103240
22,500
7500
22,500
8250
22,500
9075
13,200 14,520 15,972
103240 91669.65 79173.66
22,500
9983
17,569
65678
22,500
10981
19,326
51103
22,500
12079
21,259
35361
22,500
13287
23,385
18361
22,500
14615
25,723
0
22,500
16077
28,295
0
582,740 635,940 675,390 719,016 767,254 820,587 879,544 944,711 1,016,735 1,116,159
431,260 479,460 551,550 630,618 717,343 812,471 916,819 1,031,288 1,156,864 1,274,800
70,484 88,904 109,131 131,344 158,483 194,202 233,429 276,511 335,553
431,260 408,976 462,646 521,487 585,999 653,988 722,618 797,859 880,352 939,247
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14.2 Summary Statistics
Initial Project Investment
Fixed Cost
Total Variable Cost
Total Project Cost (Fixed Cost
+Variable Cost)
Interest on loan
Total cost inclusive interest payment (Outflow)
Revenue generation by Providing extraction oil service
Salvage value
Gross Profit(inflow)
Net cash flow (Inflow - Outflow
Period 0 Year 1
1290500
Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
-
300000
990,500 560,200
1,290,50
0 0
1,500,00
0
0
1,650,000
1,290,500 106,260 986,560
0
613,97
0
0
181500
0
1,109,3
60
0
673,11
7
0
199650
0
1,244,2
09
0
738,17
9
0
219615
0
1,392,2
93
0
809,74
7
0
241576
5
1,554,9
16
0
888,47
1
0
265734
2
1,733,5
09
0
975,068
0
0
1,070,325
0
0
1,175,108
0
103240 103240 91670 79174 65678 51103 35361 18361
1,393,74
0 663,440 705640 752291 803857 860849 923833 993429
0
1070325
0
1175108
1500000 1650000
181500
0
199650
0
219615
0
241576
5
265734
2 2923076 3215383 3536922
78,453
2923076 3215383 3615374
1,929,64
7 2,145,058 2,440,266
Payback Period
NPV
IRR
BCR
2.17819
$7,068,246.9
0.603372
2.435342
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15. KEY ASSUMPTIONS
Interest Rate
Loan Tenure
Grace Period
Debt Equity Ratio
Sale Price Growth Rate
Prepaid Rent Period
Increase in Staff Salaries
Increase in Office Expense
Description
8%
8 Years
1 Years
90:10
10%
1 Year
10%
10%
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