194.

PROFILE ON PRODUCTION OF RUE OIL

194-2 TABLE OF CONTENTS

PAGE

I.

SUMMARY

194-3

II.

PRODUCT DESCRIPTION & APPLICATION

194-3

III.

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

194-4 194-4 194-6

IV.

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

194-7 194-7 194-7

V.

TECHNOLOGY & ENGINEERING A. TECHNOLOGY B. ENGINEERING

194-8 194-8 194-9

VI.

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

194-10 194-10 194-11

VII.

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

194-11 194-11 194-12 194-13 194-15

194-3

I.

SUMMARY

This profile envisages the establishment of a plant for the production of rue oil with a capacity of 45 tonnes per annum.

The present demand for the proposed product is estimated at 133.4 tonnes per annum. The demand is expected to reach at 368.05 tonnes by the year 2022.

The plant will create employment opportunities for 21 persons.

The total investment requirement is estimated at Birr 4.3 million is required for plant and machinery.

8.18 million, out of which Birr

The project is financially viable with an internal rate of return (IRR) of 16 % and a net present value (NPV) of Birr2.23 million discounted at 8.5%.

II.

PRODUCT DESCRIPTION AND APPLICATION

Rue contains essential oils in its leaves out shoots. The main component of rue is methylnonylketonnee, unto 90%.

Rue oil is used in perfumery and as a food flavoring. The oil has s strong bitter taste and has been used for the treatment of intestinal worms. The oil is rich in coumarin derivatives, which appear to contribute to the pharmacologic activity of the plant. More than 15 compounds in rue have been identified as having in vitro antibacterial and antifungal activity.

194-4 III. MARKET STUDY AND PALNT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

Rue is an ornamental, shrubby herb with a strong, aromatic, bitter or acrid scent. Rue has tough, woody branches and small, smooth, bluish-green leaves. This is one of the oldest medicinal plants.

Rue Essential oil is a homeopathic remedy used for centuries as a medical preparation and may be helpful for compression wounds, contusions, physical overexertion, varicose veins, hemorrhoids, strengthens the capillary veins, dental problems - deep aching - 'dry socket', feet and ankles painful, aching heels, and for painful stiffness in wrists and hands.

According to Food and Agriculture Organization of the United Nation (FAO), world annual trade in rue oil during the period 2000 2004 was 66.09 tonnes registering an average annual growth rate of 6%. (See Table 3.1) North America and the EU are the major importing countries while Asian countries such as Vietnam, India and Cambodia were the major exporters. Table 3.1 INTERNATIONAL TRADE IN RUE OIL (TONNES) Year 2000 2001 2002 2003 2004 Trade 83.10 49.91 45.06 96.01 56.37

Source; FAO

194-5 In estimating the present demand for the product it is assumed that taking the average annual import of the product during the period of analyses and applying a 6% growth rate which is equivalent to the average growth rate of the products import is assumed to reflect the present world demand realistically. Accordingly the present global demand for rue oil is estimated at 78.71 tonnes. In order to be conservative with product quality and competitive price the market share that could be captured by local produced rue oil is estimated at 15% or 11.81 tonnes. 2. Projected Demand

The demand projection for rue oil carried out assuming the average growth rate of the products international trade during the period 2000 2004 i.e. 6% will continue in the future is shown in Table 3.2.

Table 3.2 PROJECTED DEMAND FOR RUE OIL (TONNES) Projected Demand 83.44 88.44 93.75 99.37 105.34 111.66 118.36 125.46 132.99 140.97 149.42 158.39 167.89 Ethiopia's Market Share 12.52 13.27 14.06 14.91 15.80 16.75 17.75 18.82 19.95 21.14 22.41 23.76 25.18

Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

194-6 3. Pricing and Distribution

Based on current international price of the product, a factory get price of Birr 5,000 per kg is recommended for the envisaged factory. The product can be directly exported to end users.

B.

PLANT CAPACITY AND PRODUCTION PREGRAMME

1.

Plant Capacity

The annual production capacity of the project is 5000 kg of rue oil, based on 300 working days and three shift per day.

2.

Production Programme

At the initial stage of the production period, the project 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 then after full capacity production can be attained. The production programme is shown in Table 3.3.

Table 3.3 PRODUCTION PROGRAMME

Sr. No. 1 2 Description Rue oil (tonnes) Capacity Utilization Rate (%) 1 3,500 70

Production Year 2 4,500 90 3-10 5,000 100

194-7 IV. MATERIAL AND INPUTS

A.

RAW AND AUXILIARY MATERIALS

The ratio of oil to leaves is about 0.1% which relatively small. Rue oil is produced from the green trash leaves of the plant.

The total annual raw and auxiliary materials requirement and cost are indicated in Table 4.1. Table 4.1 RAW AND AUXILIARY MATERIALS REQUIREMENT & COST

Sr. No. 1 2

Material

Cost (1000 Birr)

Rue leaves (tonnes) Tin-plated drums (200 lt capacity) Total

5,000 25 5,025

B.

UTILITIES

Electricity, furnace oil and water are utilities of the project. Table 4.2 indicates the annual utility require rement and cost.

194-8 Table 4.2 ANNUAL UTILITIES REQUIREMENT AND COST

Sr. No. 1 2 3

Utility

Unit

Qty

Cost (1000 Birr)

Electricity Furnace oil Water Total

kWh lt m3

50,000 262,477 3000

23.7 1,420 30 1,473.7

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Process Description

Steam distillation is the best method for rue oil produced in large quantities. The steam is introduced into a vessel which contains the Leaves and water. The leaves are located on a grid placed at a certain distance above the level of water which tills the bottom of the vessel. The water is vaporized indirectly by steam flowing in a pipe coil submerged by the water. The water vapor plus the distilled oil coming from the evaporator is recovered in a separate water cooled condenser.

The mixture flowing out of the condenser is separated in a Florentine vessel. The distilled water is separated from the upper oil layer and it is sent back to the evaporator to recover the soluble alcohols by means of second distillation.

194-9 2. Source of Technology

Different suppliers could be requested for their after. For example, the follow company may be interested to supply the turn-key plant.

B/R Instrument Corporation E-mail: br. service @brinstument.Com

B.

ENGINEERING

1.

Machinery and Equipment

The list of machinery and equipment is indicated in Table 5.1. The total cost of the turnkey plan is estimated at Birr 6,237,000 of which Birr 5,197,500 is required in foreign currency.

Table 5.1 LIST OF MACHINERY AND EQUIPMENT

Sr. No. 1 2 3 4 5 6 Evaporator Condenser

Description

Qty. (No.) 10 5 5 1 4 1 set

Florentine flask Steam Boiler Pump Cooling Tower

194-10 2. Land, Building and Civil Work

The total area of the project is 2,500 m2, of which 600 m2 is a built-up area. The cost of buildings is estimated at Birr 900,000. The lease value of land at a rate of 1 Birr per m2 for 80 years is about Birr 200.000.

3.

Proposed Location

Yayu town is selected as the best location of the project for its proximity to major raw material sources. VI. A. MANPOWER AND TRAINING REQUIREMENT MANPOWER REQUIREMENT

The list of manpower and the annual labour cost are indicated in Table 6.1. The total annual cost of labour is estimated at Birr 249,000. Table 6.1 MANPOWER REQUIREMENT & LABOUR COST Sr. No. 1 2 3 4 5 6 Manpower General Manager Accountant Production Head Operators Laborers Guards Sub-total Benefit (25%BS) Total Req. No. 1 1 1 9 6 3 21 Manthly Salary (Birr) 3,000 2,000 2,000 6,300 2,400 900 16,600 4,150 20,750 Annual Salary (Birr) 36,000 2400 2400 75,600 28,800 10,800 199,200 ,49,800 249,000

194-11 B. TRAINING REQUIREMENT

On-the job training is carried out during plant erection and commissioning by the experts of machinery suppliers. The cost of training is estimated at Birr 20,000

VII.

FINANCIAL ANALYSIS

The financial analysis of the rue oil

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

5 years 8% 8.5% 30 days 30days 3 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 8.81 million, of which 57 per cent will be required in foreign currency.

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

194-12

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 Foreign Share

Total Cost (000 Birr) 160.0 750.0 4,300.0 100.0 200.0 502.0 2,169.0 8,181.0 57

* N.B Pre-production expenditure includes interest during construction ( Birr 352.02 training (Birr 20 thousand ) and Birr 130

thousand )

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

12.32

million (see Table 7.2). The material and utility cost accounts for 90.20 per cent, while repair and maintenance take 0.81 per cent of the production cost.

194-13

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 9,027.00 2085.7 100 139.68 46.56 93.12 11,492.06 547.5 280.84 12,320.40

% 73.27 16.93 0.81 1.13 0.38 0.76 93.28 4.44 2.28 100

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.

194-14 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

51 %

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 16% and the net present value at 8.5% discount rate is Birr 2.23 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 2.4 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.