Annexures

to

Terms of Reference

Annexure-1: Marketing Feasibility

Annexure-2: Financial Feasibility

Annexure-3: Environment Feasibility

Annexure-4: Social Safeguard Feasibility

Annexure-1

Marketing Feasibility

Of

Caustic Soda/Chlorine Project.

Abstract:

With companies in the chemical industry facing increasing competitive pressures from peer groups and

regional and foreign players who try to capture a larger market share, local and state chemical companies

such as PCCL must devise effective strategies to stay competitive and relevant in the market. The Caustic

Soda/Chlorine Project Proposal is expecting to transform PCCL to new heights while boosting industrial

economic growth. However, to make the right strategic business decisions in a competitive market, local

companies such as PCCL in the chemical industry must understand the industry's fluctuating dynamics, as

well as the trends in demand growth and sources of cost advantage, while using Caustic Soda/Chlorine

Project to enhance market value by using competitive advantage of “Made in Sri Lanka” as the marketing

strategy.

Introduction & Background

Paranthan Chemicals Company Limited (PCCL) is fully state-owned profit making Company.

PCCL is pioneering company in Sri Lankan Chemical Industry with brand value over hundreds

of millions of rupees. At present core business of PCCL is import and supply caustic soda and

chlorine and related products. When it comes to import and local supply of Chlorine PCCL is the

market leader with having 95% of market share. It does have significant market share on

importing and distributing other chemicals including caustic soda. With implementation of

proposed Caustic Soda/Chlorine Project, Paranthan chemicals would become un-disputed market

leader in the Sri Lankan Chemical Industry once again surpassing its former glorious era.

The project produces two main products namely Caustic Soda liquid and Chlorine and Hydro-

Chloric Acid, Sodium Hypochlorite as byproducts. There are many downstream products such

as, Poly Aluminum Chloride, Ferric Chloride, Calcium Chloride, Soap Noodles, Sodium Silicate,

Bleaching Powder, Chlorinated Paraffin, Hydrogen Peroxide. The two main products are called

as base chemicals due to extensive usage in many manufacturing industries as building blocks of

many more products.

Marketing Feasibility study (MFS), is very important and crucial part of the Caustic

Soda/Chlorine Project. Main objective here is to leverage market assessment to understand

market conditions and to identify the potential market risks and opportunities of this project, as a

leading player in the chemical industry specializing in the manufacture of base chemicals.

Market Analysis

Market analysis is the key activity for determining the scope of an investment. First step is to

prepare detailed estimate of the actual market volume and the market potential. The second step is

to forecast the development of future market volume. This would provide the basis for projection

of sales quantities, and therefore for the production program, plant capacity utilization and derived

requirements of materials, inputs, labor, investment, etc.

It is expected during MFS to list down and describe data needed for the market analysis,

evaluation and determination of present and future demand using alternative projection methods

and select a preferred method for data evaluation and explain rationale behind the selection on

market analysis point of view. There after MFS should detail the methods of data evaluation and

demand determination to be used for the Caustic Soda/Chlorine Project.

Determination of market size for products and down steam products.

It is expected MFS to evaluate data and present final results showing: size and composition of

present effective demand (total and by segment) identified target markets; marketing strategies

Estimated market penetration by products. Demand projections for the market (total and by

segment) for the lifetime of the project.

Marketing Strategy for main and down steam products

The Caustic Soda/Chlorine Project is expecting to have high volume sales partnership with

contract agreements, MOU’s etc. It is expected first to make sales program and marketing plan

for main products and down steam products of the proposed project with possible alternatives

and preferred sales program with presenting reasons behind the preference. It is expecting to

make presentation on sales program using tables, graphs and maps as appropriate to show the

development throughout the lifetime of the project.

Together with above data, detail the marketing strategy finally selected including reasons for

selection covering following topics

- Product and Product Policy (Product Mix)

- Product Pricing (Price Mix)

- Promotional efforts during pre-production and production stages (Communication Mix)

- Organizational set up of distribution and sales (Distribution Mix)

Estimate of sales revenues

Estimate annual sales revenues based on the sales program and the marketing strategy. Most

importantly sales forecast should go one to one with Financial Appraisal.

Estimate of sales and distribution costs (marketing costs)

Estimate sales and distribution costs

Production Program and Plant Capacity

Once the sales projections are available, a detailed production program should be prepared

showing the various production activities and their timing. The determination of production

program and plant capacity should be discussed with PCCL.

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Annexure-2

Financial Feasibility

Of

Caustic Soda/Chlorine Project.

Abstract:

This financial feasibility study (FFS), is a tool for providing potential investors, promoters and

financiers including banks with the information required to decide whether to undertake an

investment, and whether and how to finance the Caustic Soda/Chlorine project in Sri Lanka.

FFS Report will showcase the project financing, which includes the design of a proper financial

structure, considering the conditions under which funds would be available, and the

optimization of project financing from the point of view of the Paranthan Chemicals Company

Limited and the investors including national, international and intergovernmental bankers who

would become loan facilitators.

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Financial Analysis

This feasibility study, is a tool for providing potential investors, promoters and financiers

including banks with the information required to decide whether to undertake an investment,

and whether and how to finance the Caustic Soda/Chlorine project in Sri Lanka. Financially,

the Caustic Soda/Chlorine Project investment which an industrial investment could be

financially defined as a long-term commitment of economic resources made with the objective

of producing and obtaining net gains in the future.

The main aspect of this long term commitment is the transformation of liquidity-the investor's

own and borrowed funds-into productive assets, represented by fixed investment and net

working capital, as well as the generation of liquidity again during the use of these assets.

With above characterization it becomes evident that financial analysis and final project

appraisal involves the assessment, analysis and evaluation of the Caustic Soda/Chlorine project

input(s), the output(s) to be produced and the future net benefits, expressed in financial terms.

For this purpose, selected firm may apply following methods:

• Analysis of the reliability of projected data.

• Analysis of the structure and significance of costs and income projections in

order to identify the critical variables that could have a significant impact on

the feasibility of the Caustic Soda/Chlorine project investment

• Determination and evaluation of the annual and accumulated financial net

benefits, expressed as profitability, efficiency and/or yield of the investment.

• Consideration of the time factor with regard to prices, cost of capital, and

decisions taken in conditions of uncertainty (norm, business risks and specific

project risks).

The above-mentioned transformation of liquid financial resources (funds) into productive assets

(fixed assets and net working capital) corresponds to the financing of the Caustic Soda/Chlorine

Project investment. Project financing includes the design of a proper financial structure,

considering the conditions under which funds would be available, and the optimization of

project financing from the point of view of the Paranthan Chemicals Company Limited and the

investors including national, international and intergovernmental bankers who would become

loan facilitators.

As noted earlier, the conditions for the appraisal of the Caustic Soda/Chlorine Project

investment are that a technically feasible solution is also financially feasible, can be

implemented within the socio-economic and ecological environment identified for the

investment project (socio-economic and ecological feasibility), and is likely to continue to be

feasible for the minimum time determined by decision makers as the planning horizon for their

decisions.

The scope and objectives of financial analysis are therefore to determine, analyses and interpret

all the financial consequences of the Caustic Soda/Chlorine Project investment that may be

relevant to and significant for the investment and financing decisions.

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Once all the elements of the feasibility study are prepared in accordance with the approach

outlined in the previous articles, the next step is to compute the total investment costs and annual

production costs. Taking the above mentioned into consideration, following indicates the

manner in which it is expected.

Total Investment Costs

Calculate the total investment costs by summarizing all investment components as follows

• Land and site preparation

• Structures and civil engineering works

• Plant machinery and equipment

• Auxiliary and service plant equipment

• Fire & Safety

• IT & ERP System

• Incorporated fixed assets

• Pre-production capital costs

• Net working capital requirements

Project Financing

Describe and justify assumed or actual sources of finance. Calculate annual financial costs.

Describe the impact of cost of financing and debt servicing on project proposal. Describe the

financial structure (debt/equity) ratios

Total Cost of Products Sold

Calculate total cost of products sold by summarizing all cost items as described below,

• Market Analysis and Marketing Strategy,

• Raw Materials and Supply,

• Location, Site, Environmental & Social Impact Assessment,

• Engineering and Technology,

• Organization and Overhead Costs,

• Human Resources,

• Implementation Planning and Budgeting

Use data from Organization and overhead costs and incorporate them into separate schedule to

summarize total cost of products sold. Estimate the cost of products sold on an annual basis in

accordance with the assumed capacity utilization during the initial years of operation and

thereafter. Also estimates the unit cost of products that are to be sold.

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Financial Statements

• Prepare projected cash-flow tables, income statements and balance sheets covering the

entire project life.

• Compute commercial profitability indicators:

o Pay-back period

o Simple rate of return

o Net Present Value

o Internal rate of return

• Carry out break-even analysis (expressing break-even point in terms of sales revenues,

physical units produced and capacity utilization).

• Make sensitivity analysis (impact of changes in sales price, variable and fixed

production costs and investment costs on the financial viability of the project). Indicate

major risk factors and their likelihood of occurrence

• State clearly to what extent the project is subject to uncertainties. To which extent can

one consider the project as a safe investment.

• Present Financial Ratios.

Economic Cost-Benefit Analysis

At 2800 million LKR, Caustic Soda/Chlorine Project is considered as a major project, it

impact is a national level and since the project proponent PCCL is a fully state own

company an Economic Cost-Benefit Analysis to be consider.

It should emphasis that economic cost-benefit analysis should present the contributions of

the project to the national economic and social objectives, for this purpose analyze aspects

such as

• Employment generation

• Income distribution

• Foreign exchange savings

• Environmental impacts

Only important issues in favor or against the project that could convince the PCCL and

Ministry of Industries and Supply Chain Management on the merits/demerits of the Caustic

Soda Project needed to be presented.

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Software Usage for Analysis

It is recommended to use computer software to present profitability calculations. The use of

computers helps to eliminate accidental errors and allows quick analysis of several project

alternatives combining a wide range of possible changes of variables.

Economic Net Present Value (ENPV)

Economic Internal Rate of Return (EIRR)

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Annexure-3

Environmental Feasibility

of

Caustic Soda/Chlorine Project.

Abstract:

Environmental Feasibility Study (EFS) assesses the viability of the proposed caustic soda/chlorine project

from an environmental perspective, identifying potential issues and threats to the successful completion of

the proposed caustic soda/chlorine project. Solutions and mitigative measures are be investigated. The

purpose of the EFS is to evaluate potential risks and liabilities with regards to environmental and health &

safety issues such as land contamination, before any contractual agreements are entered into. This is vital

as these risks may translate into financial liabilities for the parties involved.

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Introduction & Background

Environmental Feasibility Study (EFS) assesses the viability of the proposed caustic soda/chlorine

project from an environmental and social perspective, identifying potential issues and threats to

the successful completion of the proposed caustic soda/chlorine project. The Caustic

Soda/Chlorine Project EFS will be investigating solutions and mitigative measures. The purpose

of the EFS Report is to evaluate potential risks and liabilities with regards to environmental and

health & safety issues such as land contamination, before any contractual agreements are entered

into. This is vital as these risks may translate into financial liabilities for the parties involved.

Therefore, the EFS should include a thorough and realistic analysis of the environmental impacts

of the investment project. These impacts are often of crucial importance for the socio-economic,

financial and technical feasibility of a project. Following are expected to be covered in the EFS of

Caustic Soda/Chlorine Project.

Scope of Work.

EFS will analyze project proposal for the Caustic Soda/Chlorine Project. Project proponent

expected to be informed about relevant laws and policies, as well as Strategic Environmental

Assessments (SEAs) by Central Environmental Authority, which consider broader sectoral,

regional, or spatial opportunities and risks within policies, plans, or programs, as conditions for

development of final feasibility study of the Caustic Soda/Chlorine Project.

The EFS work process should engage interested and affected parties in the earliest stage of the

project. This scoping is a formal step to ensure all relevant stakeholders are involved and the EFS

focuses on key issues, to enable and influence design, consideration of project alternatives.

Relationships among biophysical impacts (water, biodiversity, air, soils) and impacts on people

(social, cultural heritage, economic, livelihoods, health, safety, human rights, and gender) must be

identified and evaluated, and must also recognize relationship to the Sustainable Development

Goals (SDGs) and Circular Economy. EFS Specialist assessments must identify and evaluate all

potentially significant impacts and ensure that the links between biophysical impacts and people

through ecosystem services—nature’s contribution to people—are made clear, furthermore the

Caustic Soda/Chlorine project and the acceptability of impacts must be assessed in the light of

predicted climate change.

EFS should address the chain of direct, indirect, and induced effects, as well as cumulative effects

(additive and synergistic effects of downstream projects and future expansions if any on the same

environmental resources and people).

The EFS must describe measures to prevent, minimize, and/or remedy harm or enhance project

benefits, and explain any tradeoffs (i.e., losses in some areas, gains in others). It should analyze

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the distribution of negative and positive impacts—who benefits, who loses or suffers, and whether

it is fair.

The EFS report of Caustic Soda/Chlorine project should reflect the size/scale and location of the

project. It must be an objective to give a non-technical summary of the findings. It should state if

the EFS specialist studies have been peer reviewed. Baseline studies and methods of assessing

impacts should be clearly explained.

Impact predictions must make sense and be supported by data. Context, history, trends, and

location will affect the interpretation of social, cultural, and economic impacts, where as for

biophysical, climate change, and health impacts, there are proven scientific relationships between

cause and effect and environmental models. In every situation, the EFS must base the certainty

and predictability of impacts on thorough and accurate baseline information and probable future

scenarios as well.

The approach to evaluating impact significance (based both on science and human values) should

be set out as one of first workout by EFS specialist. Relevant international agreements (e.g.,

Convention on Biological Diversity), SDGs, national laws, customary laws, and national or local

standards should be cited. Because acceptability of impacts to affected parties is important,

stakeholder engagement is crucial. Impacts that cause loss of resources that are unique, scarce,

under threat or irreplaceable, are irreversible or are unacceptable to affected parties, would all be

considered significant.

It is important that EFS Report must describe and evaluate all project phases and components, and

the associated infrastructure or activities on which the Caustic Soda/Chlorine project relies, e.g.,

access roads, use of renewable power sources or water sources as much as possible in this early

stage of the project.

The EFS must reference and address the potential impacts identified through early scoping.

The FES must consider all relevant valued environmental resources (threatened or rare

biodiversity, water, ecosystem services), tangible and intangible cultural heritage, health and

safety, effects on livelihoods, as well as climate change effects.

The EFS must consider feasible alternatives, if any that have fewer adverse impacts and more

benefit.

The EFS must provide a realistic plan to mitigate (avoid or prevent, minimize, restore or

rehabilitate, offset or compensate) adverse impacts and enhance positive impacts of the best

alternative, as well as monitor and adapt management of the project to achieve desired results.

The selected consultancy firm is required to initiate Environmental Impact Assessment Process

together with EFS in coordination with PCCL. The selected consultancy firm will be required to

complete the EIA/IEE process and obtain the Central Environment Agency approval. The selected

consultancy firm shall be responsible for monitoring of environmental parameters of the caustic

soda/chlorine project twelve months after commercialization of the project. The EIA/IEE should

initiate with BIQ (Basic Information Questioner) and impact assessment out line below.

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Screening of Possible Environmental Impacts:

- Type of processes involved.

- Size of the plant

- Type of wastes and proposed ways of their disposal (quantities and qualities)

Identification of Receptors of Impacts

- Area where the project is to be located

- Receptor(s) of wastewater

- Disposal of solid waste

- Disposal of flue gases (Chlorine)

Analysis of Environmental Impacts

- Capacity of environment to absorb discharges

- Significance of long-term impacts on humans, fauna and flora.

Analysis of Required Mitigating Measures and Their Respective Costs

- Effects of "good housekeeping" and Resource Conservation

- Effects of Recirculation and Re-use

- Possible Process Changes

- Treatment and Disposal of Waste

Annexure-4

Social Impact Assessment

Of

Caustic Soda/Chlorine Project.

Abstract:

The goal of Social Impact Assessment (SIA) is to bring about a more ecologically, socio-culturally and

economically sustainable and equitable environment therefore promoting community development and

empowerment, builds capacity, and develops social capital (social networks and trust). A proactive stance

to the Caustic Soda/Chlorine Project and its outcomes are expected from this SIA, not just the identification

or improvement of negative or unintended outcomes. SIA Assistance for communities and other

stakeholders to identify development goals, and ensuring that positive outcomes are maximized.

Introduction & Aim of SIA

The goal of Social Impact Assessment (SIA) is to bring about a more ecologically, socio-culturally and

economically sustainable and equitable environment. Social Impact assessment, therefore, promotes

community development and empowerment, builds capacity, and develops social capital (social networks

and trust).

The focus of concern of SIA of Caustic Soda/Chlorine Project is a proactive stance for development and

better development outcomes, not just the identification or improvement of negative or unintended

outcomes. Assisting communities and other stakeholders to identify development goals, and ensuring that

positive outcomes are maximized.

The good practice of SIA accepts that social, economic and biophysical impacts are inherently and

inextricably interconnected. Change in any of these domains will lead to changes in the other domains. SIA

for the Caustic Soda/Chlorine Project must, therefore, develop an understanding of the impact pathways

that are created when change in one domain triggers impacts across other domains, as well as the iterative

or flow-on consequences within each domain. In other words, there must be consideration of the second

and higher order impacts and of cumulative impacts.

SIA thus has strong links with a wide range of specialist sub-fields involved in the assessment of areas such

as: community impacts; demographic impacts; development impacts; economic and fiscal impacts;

infrastructural impacts, institutional impacts; political impacts; impacts on social and human capital; and

other impacts on societies. It should note that SIA is much more than the prediction step within an

environmental assessment framework. Social impacts are much broader than the limited issues often.

Scope & Activities

Caustic Soda/Chlorine project is about to locate in Paranthan, Kilinochchi District of Northern

province. It will be established in a land area demarcated within the land belongs to PCCL. It is

expected that with SIA will conceptualize and capture following related to the intervention by

implementing Caustic Soda/Chlorine Project.

• people’s way of life – that is, how they live, work, play on a day-to-day basis;

• their culture – that is, their shared beliefs, customs, values;

• their community – its cohesion, stability, character, services and facilities;

• their political systems

• their environment – the quality of the air and water people use; the level of hazard or risk, dust and

noise they are exposed to; their physical safety;

• their health and wellbeing – health is a state of complete physical, mental, social and spiritual

wellbeing and not merely the absence of disease or infirmity;

• their fears and aspirations – their perceptions about their safety, their fears about the future of their

community, and their aspirations for their future.

It is expected that for the Caustic Soda/Chlorine Project, the SIA to include following activities so that it

could provide better understanding and conclusion for project go-no go options.

• identifies interested and affected peoples;

• facilitates and coordinates the participation of stakeholders;

• documents and analyses the local historical setting assess cumulative impacts;

• collects baseline data to allow evaluation and audit of the impact assessment process;

• gives a rich picture of the local cultural context, and develops an understanding of local community

values;

• Identifies and describes the activities which are likely to cause impacts (scoping);

• predicts (or analyses) likely impacts and how different stakeholders are likely to respond;

• assists evaluating and selecting alternatives (including no development option);

• recommends mitigation measures;

• assists in the valuation process and provides suggestions;

• describes potential conflicts between stakeholders and advises on resolution processes;

• develops coping strategies for dealing with residual or non-mitigatable impacts;

• contributes to skill development and capacity building in the community;

• advises on appropriate institutional and coordination arrangements for all parties;

• assists in devising and implementing monitoring and evaluation program