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285. PROFILE FOR NITROGEN PLANT


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TABLE OF CONTENTS

PAGE

I. SUMMARY 285-3

II. PRODUCT DESCRIPTION & APPLICATION 285-3

III. MARKET STUDY AND PLANT CAPACITY 285-4

A. MARKET STUDY 285-4

B. PLANT CAPACITY & PRODUCTION PROGRAMME 285-6

IV. RAW MATERIALS AND INPUTS 285-7

A. RAW & AUXILIARY MATERIALS 285-7

B. UTILITIES 285-7

V. TECHNOLOGY & ENGINEERING 285-8

A. TECHNOLOGY 285-8

B. ENGINEERING 285-10

VI. MANPOWER & TRAINING REQUIREMENT 285-12

A. MANPOWER REQUIREMENT 285-12

B. TRAINING REQUIREMENT 285-12

VII. FINANCIAL ANLYSIS 285-14

A. TOTAL INITIAL INVESTMENT COST 285-14

B. PRODUCTION COST 285-15

C. FINANCIAL EVALUATION 285-16

D. ECONOMIC BENEFITS 285-17


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I. SUMMARY

This profile envisages the establishment of a plant for the production of nitrogen with a

capacity of 30,000 m3 per annum.

The present demand for the proposed product is estimated at 18,085 m3 per annum. The

demand is expected to reach at 38,575 m3 by the year 2025.

The plant will create employment opportunities for 21 persons.

The total investment requirement is estimated at Birr 5.44 million, out of which Birr 1.39

million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 15 % and a net

present value (NPV) of Birr 1.78 million, discounted at 8.5%.

II. PRODUCT DESCRIPTION & APPLICATION

Nitrogen is a colorless, odorless and tasteless diatomic gas consisting of about four-fifth of

the air. It is chemically unreactive. It is used on the production of ammoinia, acrylonitrile,

cyanamide, cyanides, nitrides; inert gas for purging, blanketing and exerting pressure, in

electric and electronic industries; in transit food refrigeration and freeze drying; pressurizing

liquid propellants; quick freezing foods; chilling in aluminium foundries; bright annealing of

steel; cryogenic preservation; food antioxidant, and inflating tyres.

Thus, one can observe that there is high demand of the inert gas.


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III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

Nitrogen is a colorless, odorless, tasteless, nontoxic gas. The product has diverse

applications. The local demand for the product is met through both import and local

production. However, there is no data available that indicates quantity of local production.

Therefore, it is assumed that import represents the unsatisfied demand. Accordingly, Table

3.1 depicts import of nitrogen during the period 2000 - 2006.

Table 3.1

SUPPLY OF OXYGEN (CUB. M)

Year Import

2000 16,337

2001 14,8032002 17,134

2003 24,418

2004 25,213

2005 12,076

2006 16,617

Average 18,085

Sources:External Trade Statistics .

As revealed by the import data shown in Table 3.1, nitrogen fluctuated and averaged at

18,085 cubic meters during the period under reference. Given the considerable fluctuation in

the supply of the product, it appears more appropriate to consider the average annual supply


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for the period under reference as the current unsatisfied demand. Accordingly, the present

unsatisfied demand for nitrogen (i.e., for 2007) is thus estimated at 18,085 cubic meters.

2. Projected Demand

The demand for nitrogen is associated with growth in the end user industries and hence the

rate of economic growth in general affects the demand for the product. Accordingly,

considering the substantially considerable rate of economic growth successively achieved in

the country, a conservative estimate of 6% growth is used in projecting the demand for the

product. The projected demand for the product is depicted in Table 3.2.

Table 3.2

PROJECTED DEMAND FOR NITROGEN (CUBIC METER)

Year

Projected

Demand

2008 19,171

2009 20,321

2010 21,5402011 22,832

2012 24,202

2013 25,655

2014 27,194

2015 28,825

2016 30,555

2017 32,388

2018 34,332

2019 36,391

2020 38,575


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3. Pricing and Distribution

According to the external trade statistics for 2006 (the latest data available), the CIF price of

nitrogen was Birr 45.56 per cubic meter. Allowing margin for import duty and other clearing

expenses, the factory -gate price for the envisaged plant is estimated at Birr 55 per cubic

meter.

The product can get its market outlet through direct sales to customers that include firms in

the iron and steel industry, chemical industry, gas welding shops, hospitals and the like. The

plant can also appoint agents at selected locations.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

The market study for nitrogen plant shown above indicates that the demand for the product in

2008 will be 19,171 m3, while this figure grows to 28,825 m

3 in 2015 and to 38,575 m

3 in

2020. The technology of nitrogen plant has grown for typical production capacity ranging

from 100 m3per day to 4000 m

3per day. Accordingly, on the basis of projected demand of

nitrogen gas in the country, it would be appropriate to select a plant that can produce 100 m3

of nitrogen gas per day. For a plant working 300 days a year, the annual production capacity

will be in the order of 30,000 m3per annum. The proposed plant will therefore come to full

capacity production in 2016.

The plant will operate double shift 16 hours a day and 300 days a year.

2. Production Programme

Since the plant selected has a minimum economic of scale of 100 m3per day (or 30,000 m

3

per annum), and the daily requirement of nitrogen gas in 2009 and succeeding years will be

far below the daily output of the plant, it will be advisable to start production at lower


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production levels during the initial years. This will be beneficial in view of skill

development for production workers and time requirement for penetrating potential market

outlets. The following production programme is therefore prepared in view of the above

situations.

Table 3.3

PRODUCTION PROGRAMME

Year 2009 2010 2011 2012

Capacity utilization (%) 68 72 76 81

Production (m3) 20,400 21,600 22,800 24,300

IV. MATERIALS AND INPUTS

A. RAW AND AUXILIARY MATERIALS

The major input to nitrogen plant is air, which can be trapped from ambient environment.

The air thus led to the inlet compressor will have to bee cleaned leaned and filtered. No. costis associated with the material input.

B. UTILITIES

Electricity and water are utilities required for nitrogen plant. Electricity is used to operate

production equipment such as air compressor which is a highly energy-intensive equipment.

In addition to production equipment, electricity is supplied to socket outlets and lighting

points of the factory. Water is required for process, cleaning, sanitation and general purpose.

Other utilities required are oil and lubrication. Annual requirements of utilities with related

costs are given in Table 4.1 below.


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Table 4.1

ANNUAL REQUIREMENTS OF UTILITIES AND RELATED COSTS

Sr.

No.

Description Qty Cost (000 Birr)

1 Electricity (kWh) 240,000 113.76

2 Water (m3) 10,000 100.00

3 Oil & lubrication (kg) 500 30.0

Total - 243.76

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Manufacturing Process

Nitrogen is produced commercially by separating it from air. Three important methods of

separation are cryogenic distillation, combustion of natural gas (or propane and air) and

pressure swing adsorption (PSA). The choice of production method depends primarily on thedesired production capacity and nitrogen purity requirements. Cryogenic distillation is the

economic choice for the purpose of this study, since it produces pure nitrogen and is the most

extensively used of the three methods. The major unit operations in the selected production

process are:

- Production of compressed air

- Reversing heat exchangers

- Super heating

- Distillation column

- Recondensing

- Liquid nitrogen storage tank

- Liquid nitrogen vaporization

- Product nitrogen


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Air that has been compressed to 700 kpa is supplied to a thermally insulated cold box

containing reversing heat exchangers, a gel trap, a distillation column, and a super heater.

The compressed air is cooled in the reversing heat exchangers against outgoing nitrogen-gas

product, and waste gas. All the water and most of the carbon dioxide and hydrocarbons

entering with the air are reversed at regular intervals so the accumulated water, carbon

dioxide, and other components that are frozen out of the air removed in the waste-gas stream.

After passing through the reversing heat exchanger, the air is fed through a cold-end gel trap

where hazardous hydrocarbons and the remaining small quantities of carbon dioxide are

removed.

The clean air is cooled further in the super heater and is fed into the distillation column

where it is liquefied and separated into high purity nitrogen product and waste gas containing

ca 38 wt% oxygen. Both streams are warmed to ambient temperature as they are returned

through the super heater and reversing heat exchanger. The high purity product is supplied to

the pipeline. Refrigeration requirements for the plant are met by expanding a portion of the

waste gas across an expansion turbine or by addition of liquid nitrogen from a storage tank.

The product nitrogen is supplied at 350 kpa (50 psi). Pipeline pressures can be increased

with the addition of a product compressor. The product nitrogen thus produced contains


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2. Source of Technology

The technology of nitrogen gas generators have been developed and applied since long in the

past in countries like Asia, Europe and the Far East. The address of a company in India that

is engaged is the manufacture of cryogenic nitrogen gas generators is presented below.

HYD PL.CO.Pvt. Ltd

Building No. 48, III Floor, Navyung Market,

Ghaziabad, Uttar Prades 201001,

India

Phone: +(91)-(120) -2794413

Fax: +(91)-(120)-2795249

Website:http//www.indiamart.com.

B. ENGINEERING

1. Machinery and Equipment

Machinery and equipment required for the cryogenic Nitrogen generator is given in Table 5.1

below.


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Table 5.1

LIST OF MACHINERY AND EQUIPMENT AND COST

Cost (000 Birr)Sr.

No.

Description Qty

LC FC TC

1 Air compressor (700 kpa)

with air inlet and piping

1 set - 125 125

2 Surge Tank (stain less

steel)

1 set 35 - 35

3 Reversing heat exchanger 1 set - 150 150

4 Gel trap 1 set - 25 25

5 Super heater 1 set - 175 175

6 Distillation column 1 set - 205 205

7 Recondenser 1 set - 85 85

8 Expansion turbine 1 set - 110 110

9 Liquid nitrogen storage

tank (15,000 m3each)

2 sets 130 - 130

10 Liquid nitrogen vaporizer 1 set - 35 35

11 Meter - 15 15

12 Pipings, valves, fittings,

instruments, etc.

Reqd - 150 150

FOB price 165 1075 1240

Freight, insurance, bank

and customs charges,

materials handling cost

150 - 150

CIF landed cost 315 1075 1390

2. Land, Building and Civil Works

Land is required to accommodate factory building, administration and social buildings. Land

is also required for future expansion of the plant. In view of this, a total of 3000 m2of land is


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Table 6.1

MANPOWER REQUIREMENT AND SALARY OF EMPLOYEES (BIRR )

No. Job Title

Req.No.

Monthly

Salary

Annual Salary

A. Administration

1 Plant manager 1 2,000 24,000

2 Secretary (cashier) 1 600 7,200

3 Personnel officer 1 800 9,600

4 Store head 1 700 8,400

5 Sales head 1 700 8,400

6 Clerk 1 450 5,400

7 Driver 1 450 5,400

8 Gurad 4 250 12,000

Sub- total 11 80,400

B. Production

1 Production head (chemical

engineer)

1 18,000

2 Skilled operators 4 28,800

3 Unskilled workers 4 13,200

4 Technician 1 7,200

Sub- total 10 67,200

Workers benefit (25% BS) - 36,900

Total 21 184,500


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VII. FINANCIAL ANALYSIS

The financial analysis of the nitrogen project is based on the data presented in the previous

chapters and the following assumptions:-

Construction period 1 year

Source of finance 30 % equity

70 % loan

Tax holidays 3 years

Bank interest 8%

Discount cash flow 8.5%

Accounts receivable 30 days

Work in progress 1 days

Finished products 30 days

Cash in hand 5 days

Accounts payable 30 days

A. TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 5.44

million, of which 16 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.


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Table 7.1

INITIAL INVESTMENT COST

Sr. Total Cost

No. Cost Items (000 Birr)

1 Land lease value 240

2 Building and Civil Work 3,000.00

3 Plant Machinery and Equipment 1,390.00

4 Office Furniture and Equipment 100

5 Vehicle 250

6 Pre-production Expenditure* 440.91

7 Working Capital 24.44

Total Investment cost 5,445.4

Foreign Share 16

* N.B Pre-production expenditure includes interest during construction Birr 290.91

thousand and Birr 150 thousand costs of registration, licensing and formation of the

company including legal fees, commissioning expenses, etc.

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 1.24 million (see

Table 7.2). The material and utility cost accounts for 19.60 per cent, while repair and

maintenance take 9.14 per cent of the production cost.


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Table 7.2

ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %

Raw Material and Inputs0.00 0.00

Utilities243.76 19.60

Maintenance and repair113.65 9.14

Labour direct110.7 8.90

Factory overheads36.9 2.97

Administration Costs73.8 5.94

Total Operating Costs578.81 46.55

Depreciation391 31.44

Cost of Finance273.64 22.01

Total Production Cost 1,243.45 100

C. FINANCIAL EVALUATION

1. Profitability

According to the projected income statement, the project will start generating profit in the

first year of operation. Important ratios such as profit to total sales, net profit to

equity (Return on equity) and net profit plus interest on total investment (return on total

investment) show an increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is viable.


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2. Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at full

capacity ( year 3) is estimated by using income statement projection.

BE = Fixed Cost = 41 %

Sales Variable Cost

3. Pay Back Period

The investment cost and income statement projection are used to project the pay-back period.

The projects initial investment will be fully recovered within 6 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 15 % and the net

present value at 8.5% discount rate is Birr 1.78 million.

D. ECONOMIC BENEFITS

The project can create employment for 21 persons. In addition to supply of the domestic

needs, the project will generate Birr 1.13 million in terms of tax revenue. The establishment

of such factory will have a foreign exchange saving effect to the country by substituting the

current imports.

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