297 .

PROFILE OF PRODUCTION MALARIA CONTROL INSECTICIDE

297 - 2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

297 - 3

II.

PRODUCT DESCRIPTION & APPLICATION

297 - 3

III.

MARKET STUDY AND PLANT CAPACITY A. MARKET STUDY B. PLANT CAPACITY & PRODUCTION PROGRAMME

297 - 4 297 - 4 297 - 8

IV.

RAW MATERIALS AND INPUTS A. RAW & AUXILIARY MATERIALS B. UTILITIES

297 - 9 297 - 9 297 - 9

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

297 - 10 297 - 10 297 - 11

VI.

MANPOWER & TRAINING REQUIREMENT A. MANPOWER REQUIREMENT B. TRAINING REQUIREMENT

297 - 12 297 - 12 297 - 13

VII.

FINANCIAL ANLYSIS A. TOTAL INITIAL INVESTMENT COST B. PRODUCTION COST C. FINANCIAL EVALUATION D. ECONOMIC BENEFITS

297 - 13 297 - 13 297 - 14 297 - 15 297 - 16

297 - 3 I. SUMMARY

This profile envisages the establishment of a plant for the production of malaria control insecticide with a capacity of 800 tonnes per annum.

The present demand for the proposed product is estimated at 14 tonnes per annum. The demand is expected to reach at 82.6 tonnes by the year 2020.

The plant will create employment opportunities for 34 persons.

The total investment requirement is estimated at Birr 11.95 million, out of which Birr 5.79 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 27 % and a net present value (NPV) of Birr 9.42 million ,discounted at 8.5%.

II.

PRODUCT DESCRIPTION AND APPLICATION

Malathion and DDT are the two popular insecticides used for fighting against malaria. The two insecticides can be produced in two forms: dust and wettable powder. The latter is water dispersible powder concentrate that on dilutions with water yield rather stable suspensions. The requirements for wettable powders are:

1) 2) 3) 4)

Good wettability and easy spreading over surfaces Stability in storage and absence of caking. Retension on sprayed surfaces for a more or less prolonged time. Rapid formation of a suspension and slow settling out of solid particle.

Wettable powders can be prepared in three concentration grades

a)

60-90% active ingredient content

297 - 4 b) c) 30-60% active ingredient content Less than 30% active ingredient content

In this project profile wettable powder of DDT (75%) shall be prepared to test the financial viability of the project.

In the same plant, dust formulations of DDT and malathion can also be produced with different concentration.

III.

MARKET STUDY AND P LANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

The most commonly used malaria control insecticides in Ethiopia are Malathion 50% WDP, DDT 75% WDP and DDT 100%. The major end user of these malaria control insecticides is the government. The countrys requirement for the products is essentially met through domestic production. Adami Tulu Pesticides Processing Share Company constitutes the sole producer of DDT in the country. The company has an average annual production capacity of 800 tons of DDT. There is high demand for this product since malaria vulnerable areas of the country are increasing from time to time.

The incidence of malaria in the SNNP Region is quite significant. As can be seen from Table 3.1, the share of malaria in hospital and health center morbidity in the Region during 2003-2006 had been substantial. On the average, 314,153 malaria cases are annually diagnosed in the region. During the same period, malaria cases, on the average, accounted for 22.43% of all cases of hospital and health center morbidity in the Region. Moreover, the number of malaria treated persons, number of malaria affected kebeles, and number of houses sprayed in the Region during the year 2006 was 845,715, 209, and

297 - 5 302,261, respectively (Table 3.2). This reveals the severity of the incidence of malaria in the Region.

Table 3.1 THE SHARE OF MALARIA IN HOSPITAL AND HEALTH CENTER MORBIDITY: SNNPR

Number of Year 2003 2004 2005 2006 Average Malaria cases 16,327 633,468 588,843 17,975 314,153 % All cases 26.5 25.7 22.12 15.4 22.43

Source: CSA, Statistical Abstract, various issues.

According to experts in the malaria control team of the Ministry of Health, insecticide requirements are determined on the basis of the following formula.
100 u s d 1000 c

A=

Table 3.2 THE INCIDENCE OF MALARIA IN SNNPR, 2006 Number of treated persons Number of affected kebeles Number of houses sprayed Source ; CSA, Statistical Abstract, various issues. 845,715 209 302,261

297 - 6 where A = amount of insecticide required in kgs u = total number of unit structures, s = average sprayable surface area in m2 per unit structure, d = dosage of insecticides active ingredient in gm/m2, c = insecticide concentration in percentage

Making use of this formula the amount of insecticide (DDT) required in the SNNP Region in 2006 (with a safety margin of 10%) is estimated at 17733 kg. The average rate of growth of malaria related morbidity in the region between 2003 and 2006 is computed to be 10.1%. This rate of growth is adopted in estimating the demand for malaria control insecticide (DDT) in the region. The present demand for the product (i.e. 2007) is thus estimated at 14086 kg.

2.

Projected Demand

For the reason stated above, a rate of growth of 10.1% is used in projecting the demand for malaria control insecticide. The projected demand for the product is shown in Table 3.3.

297 - 7 Table 3.3 PROJECTED DEMAND FOR MALARIA CONTROL INSECTICIDE (KG)

Year

Projected Demand

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

19,524 21,496 23,667 26,057 28,689 31,587 34,777 38,290 42,157 46,415 51,103 56,264 61,947 68,203 75,092 82,676

3.

Pricing and Distribution

The producer price of domestically produced DDT is Birr 20 per kg. This price is recommended for the product of the envisaged plant.

The production and distribution of malaria control insecticides is strictly monitored by the government. The products are used only for public health intervention and the major

297 - 8 end user constitutes the government. Accordingly, the envisaged plant is expected to supply its product directly to the government.

B.

PLANT CAPACITY PRODUCTION PROGRAMME

1.

Plant Capacity

The annual production capacity of the envisaged project is 800 tonnes of wettable powder (DDT and malathion) based on 300 working days and 8 hours per day.

2.

Production Programme

Table 3.4 indicates the production programme of the project. At the initial stages of the prosecution period, the plant requires some years to penetrate the market. Therefore, in the first and second year of production, the capacity utilization rate will be 70% and 90%, respectively. In the third year and thenafter, full capacity production shall be attained.

Table 3.4 PRODUCTION PROGRAMME

Sr. No. 1 2

Product 1 DDT wettable powder (75%) Capacity utilization rate (%) 560 70

Cost (000 Birr) 2 720 90 3-10 800 100

297 - 9 IV. MATERIAL & INPUTS

A.

RAW AND AUXILIARY MATERIALS

The principal raw material of the plant are active ingredients such as DDT and malathion and inerts (carriers) such as diatomite. The annual raw and auxiliary materials

requirement and cost of the project are indicated in Table 4.1. Diatomite is selected as the best because it does not normally possess the surface acidity associated with most clays. The raw diatomite from the quarry has high moisture content (20%).

Table 4.1 ANNUAL RAW AND AUXILIARY MATERIALS REQUIREMENT & COST (FULL CAPACITY)

Sr. No. 1 2 3 DDT

Materials

Qty (Tonnes) 600 200 FC 8,500 400

Cost (000 Birr) LC 1,700 300 80 Total 10,200 300 480

Diatomite Dispersing agents &

wetting -

Packing material Total

8,900

60.2 2140.2

60.2 11,040.2

B.

UTILITIES

The major utilities of the project are electricity, water and furnace oil. The annual utility requirement and cost are indicated in Table 4.2. Furnace oil is used to generate heat

required to reduce the moisture of diatomite from 20% to 1%.

297 - 10 Table 4.2 ANNUAL UTILITIES REQUIREMENT & COST

Sr, No.

Utility

Unit

Qty

Cost (000 birr)

1 2 3

Electricity Furnace oil Water Total

kWh Kg M3

176,400 40,000 2,000

83.61 216.4 20 320.01

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Process Description

The core operation in a formulation plant is mixing of the active ingredients with other auxiliary materials. The active ingredient (DDT) and diatomite (dried) are loaded into the ribbon type blender and transferred to the micro-pulverizer which mills, and mixes simultaneously. The material is again homogenized in another ribbon-type blender with the dispersing and wetting agents. The finished product is then stored and finally packed.

2.

Source of Technology

The following company (Italian) has already supplied the machinery and equipment of Adami Tulu Pesticide Processing Share Company.

ENDECO S.P.A Engineering Design Construction 35123 Padova, Prato della Valla 81 Tel. (015) 655433

297 - 11 B. ENGINEERING

1.

Machinery & Equipment

The list of machinery and equipment is indicated in Table 5.1. The total cost of machinery is estimated at Birr 5,796,000 of which Birr 4,830,000 is required in foreign currency.

Table 5.1 LIST OF MACHINERY & EQUIPMENT

Sr. No. 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12

Description Wettable powder formulation unit Silo Bucket elevator Dust extraction system Stainless steel kettle Ribbon blender Micropulverizer Bag filling machine (small and Big) Scales Dust exhaust system Vacuum cleaning system Diatomite treatment unit Hopper Vibrating feeder Metal dector Impact mill Belt conveyor Air classifier Cyclo Ball mill Air heater Bag filter Compressor Boiler

No.

2 1 1 1 1 1 2 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1

297 - 12 2. Land, Building and Civil Works

The total area of the project is about 5,000 m2 of which the built-up area is 1,500 m2. The cost of building is thus estimated to be Birr 2,250,000. The lease value of land at a rate of 1 Birr/m2/year is about Birr 400,000 for 80 years.

3.

Proposed Location

For its access to potential market and infrastructure, Wolkite town is selected to be the best location of the project.

VI.

MANPOWER & TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The list of manpower and labour cost are indicated in Table 6.1. The total annual cost of labour is estimated at Birr 373,500.

Table 6.1 MANPOWER REQUIREMENT & LABOUR COST

Sr. No. 1 2 3 4 5 6 7 8 9

Manpower General manager Secretary Sales officers Accountant Production head Operators Ass. Operators General service Chemists Sub- total Benefits (25% BS) Total

Req. No. 1 1 1 1 1 8 12 8 1 34 34

Monthly Salary (Birr) 3,000 800 1,500 2,000 2,000 5,600 4,800 3,200 2,000 24,900 6225 31125

Annual Salary (Birr) 36,000 9,600 18,000 24,000 24,000 67,200 57,600 38,400 24,000 298,800 74700 373,500

297 - 13

B.

TRAINING REQUIREMENT

On-the-job training of manpower can be carried out during plant erection by experts of machinery supplier and its cost is estimated at Birr 30,000.

VII.

FINANCIAL ANALYSIS

The financial analysis of the malaria control insecticide project is based on the data presented in the previous chapters and the following assumptions:-

Construction period Source of finance

1 year 30 % equity 70 % loan

Tax holidays Bank interest Discount cash flow Accounts receivable Raw material local Work in progress Finished products Cash in hand Accounts payable

3 years 8% 8.5% 30 days 30days 5 days 30 days 5 days 30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr 11.95 million. The major breakdown of the total initial investment cost is shown in Table 7.1.

297 - 14 Table 7.1 INITIAL INVESTMENT COST

Sr. No. 1 2 3 4 5 6 7 Cost Items Land lease value Building and Civil Work Plant Machinery and Equipment Office Furniture and Equipment Vehicle Pre-production Expenditure* Working Capital Total Investment cost

Total Cost (000 Birr) 400 2,250.00 5,796.00 125 650 681.62 2051.35 11,954.0

* N.B Pre-production expenditure includes interest during construction ( Birr 481.62 thousand ), training ( Birr 30 thousand) and Birr 170 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 13.81 million (see Table 7.2). The material and utility cost accounts for 94.90 per cent, while repair and maintenance take 1.87 per cent of the production cost.

297 - 15 Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Raw Material and Inputs Utilities Maintenance and repair Labour direct Factory overheads Administration Costs Total Operating Costs Depreciation Cost of Finance Total Production Cost

Cost 11,040.20 320 250 224.1 74.7 149.4 12,058.40 874.6 448.27 13,381.27

% 82.50 2.39 1.87 1.67 0.56 1.12 90.11 6.54 3.35 100

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.

297 - 16

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 Sales Variable Cost

22%

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 4 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 27 % and the net present value at 8.5% discount rate is Birr 9.42 million.

D.

ECONOMIC BENEFITS

The project can create employment for 34 persons.

In addition to supply of the

domestic needs, the project will generate Birr 6.29 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.