Pre-Feasibility Study (SUPPLY OF LIQUID HUMIC ACID PRODUCT) Pakistan Council of Scientific and Industrial Research Head Office Constitution Avenue Sector G 5/2 Islamabad. Ph: 051-9225393 Fuel Research Centre-PCSIR, Off University Road, Karachi-75280 Tel: 021-34641937; 021-34641738 Fax: 021-34641754 E-mail: info@pcsir-frc.gov.pk; frc_pcsir@hotmail.com www.pcsir-frc.gov.pk Note: All services / information related to PMs Youth Business Loan are Free of Cost April, 2014
1. DISCLAIMER This information memorandum is to introduce the subject matter and to provide a general idea and information on the 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 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. Fuel Research Centre PCSIR, 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. For more information on service Fuel Research Centre, please contact our website: 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 prefeasibility 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 purpose of this document is to facilitate potential investors in Execution of Pilot Plant Facility for Production of Liquid Humic Acid Fertilizer (Sabzazar Regd.) by providing them a general understanding of the business with the intention of supporting 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 thumb 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. 1
3. INTRODUCTION TO FUEL RESEARCH CENTRE, KARACHI. Fuel Research Centre (FRC) Pakistan Council of Scientific and Industrial Research (PCSIR) is the premier research and development (R&D) organization first of its kind in Pakistan for coal, energy and environmental research. FRC has over several years developed the capability to undertake comprehensive analyses and testing of not only solid fuels like coal and coke but also liquids like gasoline, diesel and gaseous products obtained from coal and petroleum refineries. Thus FRC has served a number of industries in helping the evaluation of their fuels. The centre is actively engaged in scientific research and technological research work pertaining to coal, coke, bio-mass, liquid, gaseous fuels and especially on different aspects of power generation from coal and biomass not only to reduce power crises but also to enhance self sufficiency in this regard. As Pakistan is facing crucial problem of energy crises in the form of electricity for house-hold as well as industrial and also for fuel for transportation, it is necessary to adopt new technologies to resolve the issue. FRC has gone through a series of experiments with encouraging results in this regard and further work is in progress. The centre has achieved enough experience to conduct research and offer technical assistance and services to all Government departments, autonomous bodies, educational institutes as well as many private and public sector organizations. Our mission is also to promote basic and applied research, analytical testing and improve fundamental understanding of solid and liquid fuel as well as address critical issues and barriers for utilization of coal as an alternate energy source. 4. EXECUTIVE SUMMARY Natural Fertilizer Industry of Pakistanis contributing significantly to the national exchequer, saving billion of dollars by reducing foreign imports of synthetic fertilizers. International demand for Pakistan s Agri products, low investment as compared to other sectors, easy availability of raw material and availability of skilled labor are some of the encouraging factors that provide a potent opportunity for a new entrant to venture into Natural Fertilizer Industry business. The business project entail involves a total investment of about Rs. 2.0 million. The project will generate direct employment opportunity at least for 25 persons. Higher return on investment and a steady growth of business is expected with the industrialist having some prior experience or education in the related field of business. This pre-feasibility encompasses essential information regarding various aspects of starting a Natural Fertilizer processing unit. 2
5. INTRODUCTION TO SCHEME Prime Minister s Youth Business Loan, 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). Loans from Rs. 0.1 million to Rs. 2.0 million with tenure up to 8 years inclusive of 1 year grace period, and a debt: equity of 90: 10 will be disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwa, Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal Areas (FATA). 6. BRIEF DESCRIPTION OF PROJECT & PRODUCT Fuel Research Centre (FRC) is conducting research and development in the areas of special significance to industry, government agencies and other organizations. FRC is committed to develop, innovate, analyze and apply technology for products and processes concerning coal. The conversion of lignitic coal into humic acid fertilizer is the R&D of FRC-PCSIR, Karachi. FRC worked on the liquid form of Humic Acid to suit the conditions and demand of farmers. The products has been registered as Sabzazar Humic Acid, it has been marketed in the interiors of Sindh, Baluchistan, Khyber Pakhtunkhawa and Punjab also. Humic Acid is now the Future of Pakistan replacing Synthetic Fertilizers i.e. Urea and DAP etc, having properties 100% suitable to soils. Humic Acids have vast application fields but it is still anonymous in Pakistan, whereas it is best known plant growth hormone utilizing all over the world besides its other applications in veterinary, poultry and fish farming as good feed stock. The development of such technology and necessary adaptations for the processing / purification of the said product will be beneficial for national economics. It will also meet the future challenges to Pakistan and remain to be seen whether we accept the alternative to switch over to use our indigenous, less expensive, natural resources to develop the concept of organic agriculture. FRC-PCSIR has published 16 publications in national and international journals and 04 patents have been filed. Being an agrarian country the primary object of the proposed Pilot plant is to provide our farmers a more effective, cheaper source for enhancement of crop yield. 3
The earning of FRC may be increased by proper marketing of the product to interior areas of different provinces. The job opportunities may be increased. Use of synthetic fertilizers on the long run accelerate the rate of soil erosion and run off, therefore attention of researchers as well agriculturists / farmers is diverting towards organic farming. The use of organic fertilizers makes farming sustainable over the longer period. Humic acid also acts as soil conditioner, bio-fertilizer and enhance biological activity and makes available trace elements which is not possible by the use of synthetic fertilizers. Thus multiplicity of direct as well as indirect benefits of organic fertilizers that include financial, economical, social, environmental, ecological and other benefits, can be met by the use of humic acid derivatives hence strongly justify the production of liquid humic acid and its utilization in local fields. Demonstrable results by use of humates are overall, a direct increase of harvest of all agricultural products. Practical experience of humate usage in Russia and other former USSR republics has confirmed the following significance of harvest increase yield. 7. CRITICAL FACTORS Humic acids have a wide range of application, not only in agriculture but also in pharmaceutical, textile and environmental fields. Its capability to interact with metal and complexation with heavy metals is a subject of constant interest for the coal scientists in most of the modern research laboratories. As the structure and composition of humic acids is dependent upon parent coal structures and regeneration procedure. This project / research study would be highly helpful in elaboration of standardized procedure for production of humic acids on pilot plant scale from lignite coal deposits and its utilization in various industrial sectors. Humic acids play a vital role for plant growth in a number of ways. Both plant root and top growth have been stimulated. Humic acid can have a direct positive effect on plant growth in a number of ways. Both plant root and top growth have been stimulated by humates, but the effect is usually more prominent in the root. A proliferation in root growth, resulting in an increased efficiency of the root system, is a likely cause of higher plant yields seen in response to humic acid treatment. 4
Humic matter has been shown to increase the uptake of nitrogen by plants, and to increase soil nitrogen utilization efficiency. It can also enhance the uptake of potassium, calcium, magnesium and phosphorus. One of the valuable characteristics of humic substances is the ability to absorb and retain quite large amounts of water. In addition fulvic acid helps water penetrate and permeate plant cells, assisting nutrient uptake and water storage during drought conditions. 8. INSTALLED & OPERATIONAL CAPACITIES Presently, we have a semi-pilot scale humic acid production facility, having capacity 1000 litres / week. 9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT Being an agrarian country the product can be used all over the country. 10. POTENTIAL TARGET MARKETS Natural Fertilizer will primarily be used within the country and further expansion can enable us to export our product. 5
11. PRODUCTION SUPPLY FLOW CHART 12. PROJECT COST SUMMARY A detailed financial model has been developed to analyze the commercial viability of Natural Fertilizer processing Unit under the Prime Minister s Youth Business Loan scheme the project. Various cost and revenue related assumptions along with results of the analysis are outlined in this section. Purchase of Packed Product Transportation Storage Marketing Field Application 6
12.1 Project Economics The installed product supply capacity of the project is 50,000 bottles per year. However during first year of operations, it will operate at 80% of the installed product supply capacity as 40,000 bottles of Natural Fertilizer (Humic Acid). The following table shows internal rate of return, payback period and Net Present Value: Table 1: Project Economics Description Details Internal Rate of Return (IRR) 80% Payback Period -- Net Present Value (NPV) -- 12.2 Project Financing Following table provides details of the equity required and variables related to bank loan; Table 2: Project Financing Description Details Total Equity (10%) 0.2 million Bank Loan (90%) 1.8million Markup to the Borrower (%age/annum) 8% Tenure of the Loan (Years) 8 Grace Period (Year) 1 12.3. Project Cost Following requirements have been identified for operations of the proposed business. A rented premise has been recommended for this project. Table 3: Capital Investment for the Project Capital Investment Amount (Rs.) Description Details Product cost (4,445 bottles) 10,00,000 Rent 25,000 Establishment Charges / Manpower Hiring 350,000 Furniture 168,000 Fixture 247,000 Training/Conferences/Workshops 75,000 Transport/POL /Traveling 110,000 Contingencies 25,000 Total 20,00,000 7
12.4. Space Requirement The area has been calculated on the basis of space requirement for management and storage. Table 4: Space Requirement Sq. Ft. Facilities One hall R.C.C. Structure (40 x30 ) for storage of coal having 20000 liters capacity and (50 x13 ) for office. Estimated Rent Rs. 25,000 12.5 Furniture & Fixture Following furniture and fixture will be required for the unit: Details Quantity Cost Amount Office / Visitor Chairs 10 2,000 20,000 Office Tables 04 15,000 60,000 Fans 06 3,000 18,000 Air Conditioner 01 70,000 70,000 Total 90,000 168,000 12.7. Office Equipment / Fixture Office equipment comprises of necessary IT equipment and furniture items. Details Quantity Cost Amount Computer Laptop 01 70,000 70,000 Computer Desktop 02 25,000 50,000 Computer Printer 02 15,000 30,000 Flat bed Scanner 01 10,000 10,000 Networking 10,000 10,000 Telephone 01 2,000 2,000 Fax 01 65,000 65,000 Miscellaneous 10000 10000 Total 207,000 247,000 12.8 Material Requirements Packed bottles of Liquid Humic Acid are available at FRC, PCSIR Karachi. Technology for natural Fertilizer from Raw Coal available at Fuel Research Centre- PCSIR though TBIC Table 8: Cost of Materials Unit Rate (Rs.) Amount Packed bottles of the product (3liters) (4,445 bottles / month) 225 / bottle 10,00,125 / month Cost per Unit Rs. 225.00/= 4,445 bottles of 3 liters each per month 8
12.9 Human Resource Requirement Following table provides details of human resource required for this venture: Table 9: Human Resource Requirement Description No. of Employees Salary per month (Rs.) Project Technocrat 01 60,000 Marketing Manager 01 30,000 Sales Officer 10 125,000 Computer Operator 01 15,000 Driver 01 10,000 Labor 11 110,000 TOTAL 25 350,000 Salaries of all employees are estimated to increase at 10% annually. 12.10 Revenue Generation Sales Price First Year 1 st year Sales Revenue Product (Rs./Unit) Sales (Bottles) in (Rs) Liquid Humic Acid 500 50,000 250,00,000 N.B: The sale prices are the approximate value. Product cost and sale price of the product may be enhanced by 10% yearly or by mutual understanding. 12.11 Other Costs Other essential costs to be borne by the company are; promotional and communication expenses due to the export nature orientation of the business. 13. CONTACT DETAILS Director, Fuel Research Centre-PCSIR, Off University Road, Karachi-75280 Tel #: 021-34641937; 021-34641738 Fax #: 021-34641754 E-mail : info@pcsir-frc.gov.pk; frc_pcsir@hotmail.com Website: www.pcsir-frc.gov.pk 9