Pre-Feasibility Study

PAPER BOARD MANUFACTURING UNIT

Small and Medium Enterprise Development Authority

Government of Pakistan
www.smeda.org.pk
HEAD OFFICE 6th & 8th Floor LDA Plaza, Egerton Road, Lahore. Tel: (042) 111-111-456Fax: (042) 6304926-7 [email protected]
REGIONAL OFFICE PUNJAB REGIONAL OFFICE SINDH 5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 5610572 [email protected] REGIONAL OFFICE NWFP Ground Floor State Life Building The Mall, Peshawar. Tel: (091) 9213046-47 Fax: (091) 286908 [email protected] REGIONAL OFFICE BALOCHISTAN Bungalow No. 15-A Chaman Housing Scheme Airport Road, Quetta. Tel: (081) 831623, 831702 Fax: (081) 831922 [email protected]

8th Floor LDA Plaza, Egerton Road, Lahore. Tel: (042) 111-111-456 Fax: (042) 6304926-7 [email protected]

June, 2006

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PURPOSE OF THE DOCUMENT ............................................................................................... 4 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT..................... 4 2.1 SWOT ANALYSIS ................................................................................................................... 4 2.1.1 STRENGTH....................................................................................................................... 4 2.1.2 WEAKNESSES................................................................................................................... 5 2.1.3 OPPORTUNITIES ............................................................................................................. 5 2.1.4 THREATS.......................................................................................................................... 5 2.2 KEY SUCCESS FACTORS / PRACTICAL TIPS FOR SUCCESS .......................................................... 6

PROJECT PROFILE.................................................................................................................... 7 3.1 3.2 3.3 3.4 3.5 3.6 3.7 OPPORTUNITY RATIONALE ...................................................................................................... 7 PROJECT BRIEF ....................................................................................................................... 7 MARKET ENTRY TIMING ......................................................................................................... 7 PROPOSED BUSINESS LEGAL STATUS ....................................................................................... 7 PROJECT CAPACITY AND RATIONALE ....................................................................................... 7 PROJECT INVESTMENT ............................................................................................................. 8 PROPOSED LOCATION .............................................................................................................. 8

PAPER & PAPER BOARD .......................................................................................................... 9 4.1 4.2 4.3 4.4 4.4.1 4.4.2 PAPER .................................................................................................................................. 9 PAPERBOARD ................................................................................................................... 10 RECYCLING OF PAPER & PAPER BOARD ...................................................................... 10 REGULATIONS TO PAPER & PAPER BOARD ................................................................. 11 Custom Duties and Taxes................................................................................................. 11 Environmental Technology / Quality Issues ...................................................................... 11

RAW MATERIAL ...................................................................................................................... 12 5.1 5.1.1 5.1.2 5.1.3 5.2 5.3 5.4 AVAILABILITY OF RAW MATERIAL.............................................................................. 12 Wood based material ....................................................................................................... 12 Agricultural wastes .......................................................................................................... 12 Other Raw Material ......................................................................................................... 12 PLUPING CHEMICALS...................................................................................................... 13 BOX BOARD MAKING CHEMICALS ............................................................................... 13 OTHER CONSUMABLE MATERIALS .............................................................................. 13

MARKET INFORMATION ....................................................................................................... 13 6.1 6.2 6.2.1 6.2.2 6.2.3 6.2.4 6.2.5 6.2.6 6.2.7 6.2.8 6.3 6.4 MARKET DEMAND........................................................................................................... 15 FACTORS AFFECTING DEMAND AND SUPPLY ............................................................ 15 Demand........................................................................................................................... 15 Future Demand................................................................................................................ 16 Supply ............................................................................................................................. 16 Demand and Supply Scenario........................................................................................... 17 Imports of Paper and Paper Board Products .................................................................... 18 Import of Pulp & Paper Board......................................................................................... 18 Import of Wood Pulp........................................................................................................ 18 Import of Waste Paper ..................................................................................................... 19 INTERNATIONAL SCENARIO.......................................................................................... 19 PAPER BOARD INSUSTRY AND WTO............................................................................. 19

PRODUCTION PROCESS......................................................................................................... 21 7.1 BOX BOARD MANUFACTURING .................................................................................... 21 7.2 PRODUCTION METHODS AND TECHNOLOGY ............................................................. 21 7.2.1 Recycling Process............................................................................................................ 22 1

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7.2.2 7.3 7.4 7.5 7.6 7.6.1 7.6.2 7.7 8

Grades of Recovered Paper & Paper Board ..................................................................... 22 FLOW CHART FOR BOX BOARD MANUFACTURING ................................................... 24 PLANT LAYOUT .................................................................................................................... 25 MACHINERY REQUIREMENT .................................................................................................. 26 OTHER FIXED ASSETS REQUIREMENT .................................................................................... 27 Office Equipment ............................................................................................................. 27 Furniture & Fixture ......................................................................................................... 28 MOTOR VEHICLES ................................................................................................................. 28

LAND & BUILDING REQUIREMENT .................................................................................... 28 8.1.1 Land................................................................................................................................ 28 8.1.2 Building........................................................................................................................... 28 8.2 UTILITIES REQUIREMENT ...................................................................................................... 29

HUMAN RESOURCE REQUIREMENT................................................................................... 29 9.1 HUMAN RESOURCE REQUIREMENTS....................................................................................... 29

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KEY ASSUMPTIONS................................................................................................................. 30 FINANCIAL ANALYSIS............................................................................................................ 31 11.1 11.2 11.3 11.4 PROJECT COST ...................................................................................................................... 31 PROJECTED INCOME STATEMENT ........................................................................................... 32 PROJECTED CASH-FLOW STATEMENT ..................................................................................... 33 PROJECTED BALANCE SHEET ................................................................................................. 34

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ANNEXURES.............................................................................................................................. 35

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DISCLAIMER
The purpose and scope of this information memorandum is to introduce the subject matter and provide a general idea and information on the said area. All the material included in this document is based on data/information gathered from various sources and is based on certain assumptions. 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. SMEDA does not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. The prospective user of this memorandum is encouraged to carry out additional diligence and gather any information he/she feels necessary for making an informed decision. For more information on services offered by SMEDA, please contact our website: www.smeda.org.pk

DOCUMENT CONTROL
Document No. Prepared by Issue Date Issued by PREF-98 SMEDA-Punjab June 2006 Library Officer

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PURPOSE OF THE DOCUMENT

The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs in project identification for investment. The project pre-feasibility 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, production, marketing, finance and business management. The document also provides sectoral information, brief on government policies and international scenario, which have some bearing on the project itself. The purpose of this document is to facilitate potential investors in Paper Board manufacturing by providing them a macro as well as a micro view of packaging business with the hope that such information as provided herein will aid the 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 thumbs of 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 its successful management. This particular Pre-feasibility is regarding Paper Board Manufacturing Unit which comes under the Paper Sector. Before studying the whole document one must consider following critical aspects, which forms basis of any Investment Decision.

CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT

Below are some factors and variables that have a great bearing on setting up Paper Board Manufacturing Unit: 2. 1 SWOT Analysis Before making the decision, whether to invest in the Paper Board Manufacturing or not, one should carefully analyze the associated risk factors. A SWOT analysis can help in analyzing these factors, which can play important role in making the decision. 2.1.1 STRENGTH Availability of raw material i.e. soft wood, which is being extensively used by the match factories available in the locality. Availability of process water. Plant Effluent disposal. Availability of basic infrastructure facilities like roads, railway, electricity, fuel and gas. Market of end products. Availability of manpower. Accessible location.
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Suppliers and agents can coordinate as similar business already exists in the area. Gateway of Central Asian states.

2.1.2 WEAKNESSES The major weaknesses in this field of business are: Poor-availability of suitable processing variety of raw materials at present. Lack of in-house quality control and testing facilities in conformity with the international standards. Existing technology obsolescence. Poor infrastructure facilities such as irregular power supply, high inland transportation cost etc. The other major weakness in Pakistan paper board industry is the lack of coherence and co-operation amongst the processors and exporters due to which the problems can not be effectively addressed and tackled collectively. Non Availability of properly quality raw material at competitive prices. Tough competition will be faced from the competitors. Its water disposal being closed to residential area may pose pollution to the residents.

2.1.3 OPPORTUNITIES During construction period it has good opportunity of getting cheaper labour force and thus minimizing its cost. So cheaper labour force is also a good opportunity. Good opportunity exists to manage disposal of product in a short time. Easy coordination can be made with the suppliers and agents who are already engaged in the area. Huge transaction of some of the raw material is already being executed in the area.

2.1.4 THREATS The proposed project will be facing the following threat: Increase in International competition with China, India and Eastern Europe. Imposition of Quality and Environment standards by importing countries. Decline in the average sale price for Pakistani products. Influence of major local and foreign brands operating in the market Unavailability of quality suppliers and distribution channels. If business is looked after in the teething stage and is not well established on modern and scientific lines, it can create threat for the management.

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2. 2

Competitors could lower the price of the commodity and can result in low return to the project. Since good labor has already been engaged by the competitors, therefore efforts will be to make available the experienced staff on handsome salary; otherwise it may be problem for the Mills in the initial stages. Change in Government regulations WTO challenges and Paper board industry. Key Success Factors / Practical Tips for Success

Boxboard is used for packaging of consumer items such as cigarettes, cosmetics, garments, detergents, processed foods and spices, matchboxes, bulbs etc. and for making folders, file covers, books and note books, in addition to consumer items industrial consumers are the pharmaceuticals, glass, textile, food products, toiletries, tea, electrical goods, sports and other miscellaneous consumer products. Their consumption is linked with the state of business activity in the country. Food, FMCG will remain the largest market for boxes, comprising over 40 percent of demand. Demand will be fueled in part by popular products such as soft drink beverage carriers etc. Other nondurable goods markets expected to record above-average gains are cosmetics, toiletries and pharmaceuticals, tobacco and textiles etc. Pakistan can only survive in the present scenario on the strength of technical capabilities, product quality and cost competitiveness, which can be achieved in the following ways: The plant should be operated by technical staff/technologist to consider the quality standards of ISO, and Environment Protected Agency (EPA). Should be best located at sites close to a source of bulk supply of fresh water, proximity to effluent disposal facilities, High quality plan for raw material and ease for availability of fibrous raw material such as grasses, rice husk, sugar cane bagasse and wheat straw. Keep close interaction with the market demand and producing products in concurrence with the market requirements. The project employer should employ people who have a complete technical know how of the value added product mix to make project feasible. Product mix and value added production from by products of paper board industry can be a winning strategy. Promoting the products in a professional manner etc.

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3. 1

PROJECT PROFILE
Opportunity Rationale

Boxboard is used for packaging of consumer items such as cigarettes, cosmetics, garments, detergents, processed foods and spices, matchboxes, bulbs etc. and for making folders, file covers, books and note books, in addition to consumer items industrial consumers are the pharmaceuticals, glass, textile, food products, toiletries, tea, electrical goods, sports and other miscellaneous consumer products. Their consumption is linked with the state of business activity in the country. Food, FMCG will remain the largest market for boxes, comprising over 40 percent of demand. Demand will be fueled in part by popular products such as soft drink beverage carriers etc. Other nondurable goods markets expected to record above-average gains are cosmetics, toiletries and pharmaceuticals, tobacco and textiles etc. 3. 2 Project Brief

This particular Pre-feasibility is regarding Paper Board Manufacturing Unit which comes under the Paper Sector. The objective of the Pre-feasibility study is primarily to provide an overview about the Paper Board Manufacturing business. The proposed Prefeasibility defines the criteria on which the investment decision is based. This document covers various aspects of Paper Board Manufacturing business concept development, Start-up, Production, Marketing, Finance and Business Management. 3. 3 Market Entry Timing

Various Products and Services have high dependence on their commercialization timing and delivery to the Customers but the Paper Board Manufacturing Unit can be started at any time during the year due to the availability of Raw Material throughout the year. 3. 4 Proposed Business Legal Status

The said project can be a proprietorship or a partnership and even it can be registered under the Companies Ordinance, 1984 with the Securities & Exchange Commission of Pakistan. The selection totally depends upon the choice of the Entrepreneur. This Prefeasibility assumes the Legal Status of a Sole Proprietorship. 3. 5 Project Capacity and Rationale

The proposed size of the project is capable to produce an average of 39 Ton (Box Board) per day. Considering the local market demand trends, initially the project would be able to receive and entertain such number of orders which are required for the project to be economically viable. The plant has a processing capacity of about 14000 Ton per annum

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with 360 working days basis. Production supported by duplicating the existing box board unit. 3. 6 Project Investment

Total Initial Cost of the Project is worked out as follows: Table 1-1: Project Cost Rupees Capital Investment Requirement Working Capital Requirements Total Project Investment Requirement 85,270,000 3,000,000 88,270,000

The proposed pre-feasibility is based on the assumption of 50% Debt and 50% Equity. However this composition of Debt and Equity can be changed as per the requirement of the Investor. Table 1-2: Project Financing Rupees Debt @ 50 % Equity @ 50 % Total Project Investment Requirement Table 1-3: Project Viability IRR % - age Pay Back Period NPV @ 15 % 3. 7 Proposed Location 44,135,000 44,135,000 88,270,000

36.40% 3.75 Years 132,965,591

Lahore has been established as one of the big markets for paper and paper board products manufactured in surrounding districts. The following are the important factors, which determine the viability of the Paper Board Plant at Lahore. Availability and supply of desired quality raw material. Sufficient supply of electrical power. An ample supply of water. Adequate facilities for effluent and waste disposal. Availability of suitable labour and technical staff. Access to transportation facilities. Proximity to proposed collection point of Lahore including whole sale Market, Pulp plant, sorting, cleaning, grading & packing.

The most important factor is that Lahore has flow of paper board products from neighboring divisions/districts like Gujranwala, Faisalabad, Sheikhupura, Sargodaha. The
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availability of quality raw material is possible and plant will be located near to main market along-with facilities of utilities, fuel, transportation and waste disposal. Whereas the industrial estate at Sundar which was inaugurate on August 30, 2004. The PIEDMC initially decided to initiate work only on the 500-acre first phase of the project. The Sundar Industrial Estate is ultimately to encompass 1,500 acres. The PIEDMC start the allotment of plots- on September 1 and completed it on September 30, 2004 the development work at Sundar Industrial Estate was at full swing and more than 20 percent of the construction work has already been completed. Keeping in view the locational considerations of the access to raw materials, access to market for finished products, availability of required infrastructure and adequate arrangements for effluent disposal, suitable locations for paper and board industry projects are districts of Sheikhupura, Gujranwala, Gujrat, Kasur, Sialkot, Jacobabad and Khanpur. They are also fast emerging as trade center of country. It is emerging as second Hub for the Pakistan

PAPER & PAPER BOARD

There is often an overlapping in the terms used for Paper and Board. Normally, thicker than 0.012 inches or more is called Board, whilst thinner and lighter in weight is called Paper. The weight of paper varies from 10 grams to 125 grams per square meter, whereas the weight of paperboard ranges between 125 and 200 grams per square meter. Board refers to the heavier materials weighing 200 grams and above. 4. 1 PAPER

Paper is single ply sheet with weights of between 10 and 125 grams per square meter. By varying the fibrous and chemicals materials used and by using different surface treatments, different types and qualities of paper can be produced. Writing and printing papers have a uniform substance, thickness and moisture profile, both along and across the sheet. These are clean, free of holes and flat, have good resistance to aqueous compounds and printability and surface finish. There are numerous varieties of writing and printing paper distinguished on the basis of substance and finish depending on the requirements of different end-uses. The specialized varieties of paper include poster paper, art paper, bond paper, newsprint etc. These varieties are used for specific purposes and apart from newsprint, have limited market. The wrapping and packing paper has loser grammage between 40 to 125 grams, and can be produced on paper making machines through change in input mix and chemical treatment. Kraft paper has a higher grammage, greater strength and is mostly used for packing cement.1

Market Survey

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4. 2

PAPERBOARD

Paperboard is a multiple sheet with gramage in excess of 125 per square meter. It possesses uniform substance, thickness and moisture profiles, both along and across the sheet. These should have a clean top liner ply, smooth receptive printing surface, good opacity and good creasing quality. The critical physical strength properties are rigidity and good ply adhesion. The main sue of paperboard are for domestic and commercial packaging in the form of printed and un-printed cartons. These are most commonly used in packing of cigarettes, toiletries, detergents, tea, pharmaceuticals, food and other consumer items. The following are the general categories of Paper and Board. 4. 3 Paper Board Newsprint Kraft Paper/Liner Paper Printing & Writing Paper Box Board Packing & Wrapping Paper Fluting Paper Specialty Paper

RECYCLING OF PAPER & PAPER BOARD

The paper board industry has recycled used paper and paper board for over 600 years. After using rags for centuries, wood became the main raw material source for papermaking in the 19th century. In recent decades, used paper has become an increasingly important raw material source and, compared to many other materials, is easy to recycle. Almost any paper can be recycled including used newspapers, cardboard, packaging, stationery, postal mail, magazines, catalogues greeting cards and wrapping paper. The collection of used paper and paper board is the first step in the recycling process. There are different national and regional collection systems for paper. Papermakers usually buy their raw material for recycling from recovered paper merchants. These merchants may be owned by paper and paper board mills and is an integrated part of a mill company, or they may be an independent firm which specializes in particular grades or which perhaps operates in a smaller geographical area. Until recently, apart from old newspapers and magazines, most recovered paper came from industrial and commercial sources, because it was the easiest, cleanest and most economical to collect. But demand for recovered paper is set to grow substantially, so additional sources like households need to be tapped. The collecting system in operation must be cost-effective and efficiently organized so that the necessary volumes and qualities of recovered paper can be obtained and appropriately recycled. The paper and paper board mills that depend on recovered paper must have assurance of a regular supply.

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4. 4

REGULATIONS TO PAPER & PAPER BOARD

The current Laws, Regulations and Government Duties on paper and paperboard are as follows: 4.4.1 Custom Duties and Taxes Chapter 48 of Custom Tariff and Trade Controls lists the tariff applicable to paper & paperboard, which is given in annexure 3, page 36. 4.4.2 Environmental Technology / Quality Issues The existing production units require technological up gradation through greater investments for overcoming the environmental hazards arising from their operations. The pulp and paper mills contaminate the environment both as a result of atmospheric pollution through gaseous discharges as well as water pollution through discharge of process and conveying water. The new investment for rover coming pollution is almost equal to the total initial investment in the unit. Local Mills are making progress to control pollution and treat effluent. Mills are also working with EPA and NGOs and other local & foreign institutions to develop home grown and financially viable treatment process.2 Use of large quantity of water for pulp involves disposal of large quantity of waste water. In recent years disposal of waste has assumed importance because of restrictive legislation enacted to prevent pollution of rivers, streams, lakes etc, into which mills effluents were discharged. The only impurity involved is suspended fibrous matter and it is both easy and remunerative to recover it from the effluent An effective and economical method of disposal of mills waste is to discharge it into streams with adequate flow throughout the year to furnish dilution, so that the prescribed B.O.D (Biological Oxygen Demand) is maintained and there is no risk to fish and aquatic life or pollution of water used by cattle and human beings for drinking purposes or for washing and irrigation purposes. Another device, applicable only to relatively small alkaline pulp mills, is to segregate the small volume of bad effluents, partly treat it by sedimentation, and discharge it with permission from concerned authorities into local sewerage system, so that it is mixed with domestic sewage of locality and is treated in usual way.

Expert Advisory Cell

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5
5. 1

RAW MATERIAL
AVAILABILITY OF RAW MATERIAL

The basic raw material sources for manufacturing of paper and paper board can be broadly classified into three groups: 5.1.1 Wood based material Among the wood based raw materials, coniferous pine is in short supply in Pakistan. The soft wood forests in the country exist in extreme northern hills of North West Frontier province and Azad Kashmir which are mostly inaccessible due to lack of suitable communication facilities. Popular and eucalyptus, among the non-coniferous species, are produced mostly on irrigated land. The eucalyptus trees however, more are extensively grown but their plantations are not yet sufficient to meet pulping requirements of the paper industry. Besides, their cost is significantly higher as compared to other local material available for pulping. 5.1.2 Agricultural wastes Among the agro-based wastes the following are being extensive used: Straws Straws are by-products of cereal crops, the major being wheat and rice. Paper and paper board industry is presently the main user of the marketed supplies of wheat straw. Adequate quantities of wheat straw are available for the industry. Rice straw is generally used as packing material for glass and ceramic products. Its use in paper making is limited as it contains silica and gives some process problems. Bagasse It is a well established raw material for making almost al grads of paper, from fine quality paper to board. Grasses There is a wide range of grasses grown in Pakistan which can be used for making pulp and paper. Kahi grass grows wild along the river banks, some quantity are already being use by paper mills. Other grasses available in Pakistan are Bhabbar, Gauj Gumaz, Rhodes Grass, Chorkha, Pawpi, Chari and Dhawar. The main problems for using grasses relate to their collection and procurement. 5.1.3 Other Raw Material The group of other raw material used for pulp and paper making include the following:
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Waste Paper There are two main sources of collection of waste paper. One is waste paper collected at offices and factories such as government offices, business concerns, banks, newspapers and publishing companies, printing and book binding concerns etc. the other source is waste paper purchased by trash dealers from private persons at their homes. It is estimated that adequate quantities of waste paper are available for use in paper board industry. It is also being imported for the paper industry. Cotton Linters and Waste These are available from ginning and spinning operations as their by-products and are used for making pulp of high quality for producing superior paper as well as blending with short fibre pulp produced from wheat straw and grasses. Adequate quantities of cotton linters and wastes are available for paper industry while about 10 % of the cotton waste is also exported from Pakistan. 5. 2 PLUPING CHEMICALS

The quantity of pulping chemicals required depends on the pulping process. In the case of sulphate pulping, a chemical recovery system which regenerates the cooking chemicals is incorporated in the process. The Sulphate pulping process uses sodium sulphate and limestone (calcium Carbonate). The chemicals used in bleaching pulp are chlorine, caustic soda, lime, sodium chlorate and sodium peroxide. 5. 3 BOX BOARD MAKING CHEMICALS

Alum, starch, rosin, clay, soap stone, caustic soda and other chemicals are used at product making stage. Stock is treated with starch to improve adhesion of fibres to each other and with rosin to prevent the spread of ink, while clay and various chemicals are used to improve weight, opacity and printing qualities. Caustic soda, rosin, starch, alum and limestone are available in adequate quantities for the paper and paper board industry from local sources while other chemical are imported. 5. 4 OTHER CONSUMABLE MATERIALS

These materials include machine wires, felt, lubricants and all other non-chemical material consumed during the manufacture of pulp and paper board as well as spare parts and tools.

MARKET INFORMATION

In 1947 when Pakistan came into existence, there was not a single plant to manufacture paper in the country. All the requirements of the paper in the country had to be met through imports. Pakistan Industrial Development Corporation (PIDC) was set up for the establishment of different industries including paper mill in public sector. In 1953, PIDC
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established the first paper mill at Chandargona in East Pakistan (Now Bangladesh), followed by a high grade paper mills (Now Adamjee Paper & Board Mills) at Noshera in NWFP, and a Newsprint Mill at Khulna in East Pakistan (Bangladesh) in 1959. With the separation of East Pakistan in 1971 when it emerged as Bangladesh, a serious shortage of writing/printing paper and newsprint was created in West Pakistan, as the supplies of these papers were completely cut off from Bangladesh. Approximately 25,000 to 30,000 Ton of writing/printing paper and 27,000 Ton of newsprint were supplied from East Pakistan to West Pakistan. Due to several reasons inefficient working, the newsprint is, however, established in Pakistan, newsprint from abroad.
Year/month 1999-00 2000-01 2001-02 2002-03 2003-04

such as non-availability of required quantity of bagasse and plant is running below capacity. The position with regard to altogether different as no newsprint plant has so far been with the result that Pakistan imports its all requirement of

Paper No. of reporting Production factories (Tonnes) 80 206,543 87 284,818 19 137,852 19 147,962 19 156,822
3

Paper Board No. of reporting Production factories (Tonnes) 31 228,073 34 246,315 26 187,568 26 228,208 26 247,874

In the organized sector paper board production is divided into two types of units: one, those which are integrated pulp and producing units while others only produce paper and board and do not have pulp mills. Integrated pulp and paper industry on the basis of manufacturing process is highly value added industry and its process is convergent of various process variables. Hence it requires technological and processes know how and command over manufacturing processes for continuous quality supplies. It is due to these technical variables that very few units in Pakistan have succeeded to operate and there is a long list of inoperative and closed units. The production costs of box board mills in Pakistan are highly unpredictable as it is dependent on international pricing of wood pulp and recycled paper and seasonal agricultural output of wheat. Paper board market is further vulnerable to economic growth trends as its downstream conversion industry comprising of printing packaging is highly growth elastic. Introduction of innovative packaging designs and high quality printing on fast machines especially for fast moving consumer goods (FMCG) industries has created a lot of pressures on Paper Board sector in maintaining quality standards.4

Pakistan Pulp Paper & Board Mills Association DAWN Business Oct 08, 2001

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Forest area plays an import role in the development of paper and paper board industry as it provides the basic raw material for it. Today forest cover one-fourth of the total land area of the world excluding Antarctica and Greenland. Seven countries Russia, Brazil, Canada, US, China, Indonesia and the Democratic Republic of Congo (former Zaire) hold over 60 per cent of the worlds forest area. However, forest area constitutes just 4.8 per cent or 4.2 million hectares in Pakistan which is far below the internationally acceptable ratio of 20-30 per cent necessary for the balanced economy. In addition, actual production from the forest area in Pakistan is even smaller as only one-third of it is productive while the remaining two-third is maintained for environmental protection.5 6. 1 MARKET DEMAND

The demand for the various categories of paper and paper board has shown a steady increase over the years and is expected to continue increasing as literacy improves and economic growth takes place. The shortage so far has been met through imports. 6. 2 FACTORS AFFECTING DEMAND AND SUPPLY

6.2.1 Demand The major factors affecting the demand for the products of paper, paper board and packaging industry include the following: The demographic trend and age group The education sector developments and future education policy The economic growth trends and projections of gross national product Trends in industrialization and future projections Development of electronic media

Demographic Trends: In developing countries, increase in population and in the standard of living result in a tremendous demand for paper, packaging and fibre. According to the age-group classification based on 1981 census result, about 40 percent of the total population belongs to the age group of 5-19 years. This is the population segment which is directly related to the education sector and hence has the greatest effect on the demand for paper and paper board. Education: Education facilities in Pakistan have been expanding overtime but have not kept pace with the requirements of a modernizing society. The literacy rate which is estimated at 53 %, activities associates with the education sector account for almost one half of the paper consumption in the country. The significant development of the

Pakistan Economist

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education sector in the next five years, as envisaged in the new education policy would lead to considerable increase in demand for the writing and printing paper. Economic Growth Trend: The demand for paper, paper board and other packaging materials is directly influenced by the level of economic activity. In Pakistan the annual Gross Domestic Product (GDP) has grown at the rate is 8.4 percent in 2004-05. The increase tempo of economic activity and investment friendly policies of the government are expected to lead to greater demand for paper products. Development of Electronic Media: It is some times asserted that the demand for paper might be adversely affected due to the phenomenal growth and popularity of electronic information system. It is asserted that we are moving towards the paperless office scenario. The argument however does not have much force. We may use computers but we still like to print out our works, as for electronic information, it works only up to a point. 6.2.2 Future Demand The demand of paper and paper board is a function of number of parameters. The most important of the parameter is the per capita GNP which is an Index of the income and purchasing power of the people. It has been established by study that the demand for paper is strongly related to per capita GNP. The demand increases rapidly at low levels of per capita GNP and less rapidly at higher levels of per capita GNP. A second important parameter is the growth of literacy and education in a country. A third parameter is the rate of urbanization. Per capita consumption of paper is higher in urban areas than in the rural sector, at present, the Government checking the urbanization through several rural development programs. Another significant factor is industrialization. Since most industries use paper for packing purposes, the consumption of paper will increase as industrial production increases. Food, beverages, FMCG will remain the largest market for boxes, comprising over 40 percent of demand. Demand will be fueled in part by popular products such as soft drink beverage carriers etc. Other nondurable goods markets expected to record above-average gains are cosmetics, toiletries and pharmaceuticals, tobacco and textiles etc. 6. 2. 3 Suppl y The domestic paper board industry has currently been facing a number of challenges affecting its supply. The major factors contributing to the present sate of affairs are explained below: Devaluation of Pak Rupee Increase in input costs Changes in the level of duties

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Devaluation of Pak Rupee: The value of Pak rupee has been persistently declining in terms of foreign currencies through official policies of adjustment of foreign exchange rates. This has resulted in increase in rupee value of imported inputs, especially of long fibre wood pulp needed for mixing with local short fibre pulp for paper making. Increase in Input Costs: The increase in the rates of local energy and other input charges have also contributed to increase in cost of production. The local producers are thus placed at a comparative disadvantage in competition with imported supplies. Changes in the Level of Duties: The industry sources feel that the discriminatory changes in the duty structure, the rising fuel cost and current rate of import duties on imported materials like felts, wire and chemicals etc,. The industry is confident that with the proper encouragement on the part of the government, Pakistan paper, paperboard and printing industry can conquer the international market in the United State, Europe and the Middle East, thus earning a good name for the country as well as lots of foreign exchange. Chapter 48 of Custom Tariff and Trade Controls lists the tariff applicable to paper & paperboard, the exports of paper and paperboard from Pakistan are as follows Table 1 EXPORTS OF PAPER AND PAPERB OARD
(in Thousand Rupees)

Unit KG
6

Apr.,2005 QTY Value 28,581 3,801

Cuml from Jul-2004 QTY Value 1,666,894 203,241

Apr.,2004 QTY Value 157,847 11,609

Cuml from JUL., 2003 QTY Value 1,064,308 94,840

6.2.4 Demand and Supply Scenario The short fall in demand is met through imports from various countries. Paper and Paper Board market demand has grown at a compound growth rate of 9% during 1997-98 to 2002-03.Data on aggregate demand, physical production and imports of the last five year is given hereunder:
(Tons) 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 Demand (all grades) 376,995 404,222 466,317 481,196 524,057 549,461 Local Production* 254,984 258,452 305,947 337,193 345,727 354,852 Imports 122,011 145,770 160,370 144,003 178,330 194,609 Consumption/capita (Kgs.) 2.87 3.01 3.39 3.45 3.69 3.79 * Production of Association Member Units
7

Federal Bureau of Statistics, Pakistan. Expert Advisory Cell - 2004

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6.2.5 Imports of Paper and Paper Board Products The paper board industry has achieved the expertise along with modern technology of the highest repute. However the high cost of imported raw material renders the industry abandon the game over before going for a kickoff. Paper board products are imported from Finland, Canada, USA and China. Newsprint comprises the major imported finished product followed by white dup/coated board. Break-up of various types of paper & paper boards imported during the 1997-98 to 200203 is shown in the following table:
(Tons)

Writing & Printing Paper Wrapping & Packing Paper White Dup / Paper Board Coated Paper / Chip / Other Board Paper of all Kind Sub-total Newsprint Total

1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 6,898 7,391 7,086 6,675 10,838 11,886 16,455 16,491 18,578 18,400 21,282 28,548 31,614 41,906 41,197 41,543 56,105 55,870 7,507 11,277 10,321 10,502 11,215 12,519 4,672 5,571 6,021 7,199 8,097 9,452 67,146 82,636 83,203 84,319 107,537 118,275 54,865 63,134 77,167 59,684 70,793 76,334 122,011 145,770 160,370 144,003 178,330 194,609

6.2.6 Import of Pulp & Paper Board

(Value in million Rupees) Items Pulp & Paper Board Wood Pulp Uncoted kraft paper, roll sheet Fiber bond including building board Newsprint, in rools or sheets Un-coate paper P-board, writing Other paper and paper board Article made of paper & paper board MT MT MT MT MT MT MT Unit 2000-01 Qty. 255,490.0 94,937.0 18,270.0 34.0 59,484.0 14,436.0 56,299.0 11,830.0 Value 9,061.6 1,677.1 646.0 0.8 2,260.8 650.8 2,497.0 1,329.1 Qty. 342,043.0 124,881.0 21,644.0 39.0 70,793.0 22,322.0 69,775.0 12,564.0 2001-02 Value 10,290.0 1,892.9 736.5 1.8 2,368.6 944.6 2,985.8 1,359.7 214,632.0 29,151.0 206.0 76,333.0 25,526.0 89,815.0 12,940.0 Qty. 2002-03 Value 11,832.7 2,217.7 982.6 6.0 2,087.1 1,011.4 4,107.7 1,420.2 156,452.0 35,115.0 292.0 87,369.0 32,978.0 111,773.0 16,754.0 Qty. 2003-04 Value 14,153.2 2,382.4 118.1 9.0 2,484.4 1,335.6 5,033.2 1,720.5

6.2.7 Import of Wood Pulp Wood pulp is imported mainly import from USA, Sweden, Canada and Far East. Imports of Wood Pulp are tabulated below:
Quantity (Tons) Value (Rs.in million) U.S.A Canada Indonesia Sweden Russian Fed. Others 1997-98 1998-99 1999-00 2000-01 50,798 39,955 33,863 35,519 1,092 895 982 1,229 Imported from Countris (in %) 40.82 43.26 16.8 28.98 18.74 16.21 47.4 31.25 18.22 8.7 16.24 20.71 30.68 15.83 0.78 0.26 5.2 11.12 5.12 23.68 2001-02 54,922 1,427 51.33 12.15 0.95 16.98 18.59 2002-03 59,126 1,579 40.49 32.35 10.5 16.66

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6.2.8 Import of Waste Paper Waste paper is being imported from USA, UAE, Saudi Arabia & Singapore. Imports of waste paper from various countries are tabulated below:
Quantity (Tons) Value (Rs.in million) Singapore U.S.A Saudi Arabia Germany Belgium Malaysia Dubai Netherlands Others
8

1997-98 1998-99 1999-00 2000-01 43,380 34,860 39,047 45,948 241 222 253 325 Imported from Countris (in %) 29.38 22.95 17.88 14.99 19.23 23.59 20.81 35.3 14.87 10.19 11.17 13.09 6.39 6.4 0.43 0.31 4.93 7.7 0.05 0.64 2.07 1.07 0.04 15.4 20.76 22.54 17 7.24 7.34 27.08 18.67

2001-02 51,510 325 6.06 27.5 13.17 2.13 1.26 26.45 23.43

2002-03 58,112 442 5.4 26.34 8.41 1.52 4.61 19.88 7.25 26.59

6. 3

INTERNATIONAL SCENARIO

The international paper board sector is dominated by NORSCA (USA, Canada, Finland and Sweden) which comprise for roughly 75 per cent of high quality products. High wood pulp based products are produced in these countries due to their proximity to woodlands. Further, developed industrial base, worlds leading chemical manufacturing facilities and downstream packaging industry supplement the paper and paper board sector in the NORSCAN. China, Indonesia and Taiwan dominate Asian markets while low-grade pulp made of eucalyptus is made in South American countries like Argentina and Brazil. Spain is the main producer in Europe of wheat straw pulp otherwise produced in South Asian region. 9 6. 4 PAPER BOARD INSUSTRY AND WTO

Paper board industry is considered as one of the important industry for the economic development of any developing country, but it stands neglected in our country. It is an industry that provides direct as well as indirect employment to technical, skilled, semiskilled and unskilled workers. It employs about 100,000 people. The industry comprises around 44 paper and paper-board manufacturing units, 38 wrapping and packing paper plants and 18 writing and printing paper units. By international standards our local industry is poorly developed. The main reasons for this are: low product demands, lack of investment in technology, non-availability of local wood fibres, faulty technological base, lack of infrastructure and non-availability of

Digest of Industrial Sector in Pakistan - 2004 DAWN Business; Oct 08, 2001

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skilled manpower. Despite such problems, the industry saves $300 million in foreign exchange through import substitution. In the changing global economic scenario the demand for paper and paperboard has risen due to changes in social and economic patterns mainly through urbanization, packaged foods, consumer durables and literacy. However, the domestic industry lags behind and is unable to operate efficiently. Many units have become inoperative. Some are facing acute financial constraints. A few have closed down or are on the verge of doing so. Factory owners say that the main problems facing the industry include the non-availability of wood, wood pulp and other raw materials, low capacity utilization, fiscal anomalies, under invoicing and dumping of cheap paper products. Due to massive and unchecked deforestation, wood pulp and basic raw material for making paper and paperboard is scarce. Pulp production is based on agriculture waste, such as wheat and rice straw, cotton and lint, waste paper, biogases and kahi grassroots. But these are also in short supply, as their resources have not been fully tapped. Mills are facing difficulties in the procurement and storage of these materials. At the same time, agriculture waste available in Pakistan is used for producing only short-fibre pulp. As a result, the quality of paper produced locally suffers and is inferior to imported paper. Under the new WTO regime, the domestic industry will face stiff competition from Asian countries like China, India, Indonesia, Thailand and Taiwan that have a proximity to the Pakistani market as well as technological and other advantages. A comparison of tariff and bonded rates of India and Pakistan shows that although bonded rates under the WTO regime are lower in India: 40 per cent versus 50 per cent in Pakistan. The Pakistani paperboard industry, with a capacity of 0.6 million Ton, will be in direct competition with countries like China, which has a capacity in excess of 50 million Ton, and India, which has a capacity of 5.6 million Ton. These countries enjoy economies of scale, a technological edge, trained and qualified manpower and domestic supplies of major processing inputs, required for paper board production. Moreover, consumables like paper board machines for clothing, chemicals and spare parts are locally produced in these countries at much lower prices. China enjoys cheaper power rates, which constitutes around 15-20 per cent of total cost of production. However, due to opening of market and slashing of customs duties, various products used in the paperboard industry may also become cheaper for Pakistani producers to import, which would reduce production costs. The domestic industry will also need to improve environmental standards to meet buyers requirements. The implementation of TRIPS (Trade Related Intellectual Property Rights) and TRIMS (Trade Related Investment Measures) may also have negative impact on the industry. The government and the industry need to address these problems on a war footing to meet the challenges of the WTO regime, which is due to take effect from January 1,

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2005. The government should give due priority to this industry in the agenda list of the ministry of industries and productions. 10

7
7. 1

PRODUCTION PROCESS
BOX BOARD MANUFACTURING

Industries in the paper board manufacturing sub sector make pulp, paper, paper board, liner, fluted, box board etc.) or converted paper products. The manufacturing of these products is grouped together because they constitute a series of vertically connected processes. There are essentially three activities. The manufacturing of pulp involves separating the cellulose fibers from other impurities in wood or used paper. The manufacturing of paper board involves matting these fibers into a sheet. Converted paper board products are made from paper and other materials by various cutting and shaping techniques and include coating and laminating activities. PRODUCTION METHODS AND TECHNOLOGY

7. 2

Production processes used in the industry depend on the type of desired output and variety of raw materials used for paper board making. The use of soda process is preferred for high grade board from waste paper and paper board, Tori and straw etc. The following sequence of operations are generally followed to produce quality type paper board (box board), though the ultimate process depends upon the type of output and the variety of raw material used for pulp making. The different type of waste papers, paperboard etc. after refining are stirred separately. Waste material is now forward to the pulper for water mixing. These are blended proportions in a stock blending chest where it used to mix with water. Pumps take this material into dump chest. The pulp passed through the screen for removing all foreign material like nails, pins twigs and un-dissolved knots. This material passes through to refiner. The pulp after stock preparation and proper dilution is usually sent to the machine through one or more screens. Pulp from the machine chest is pumped to the head box where it is mixed with water.

10

Weekly Business Review (www.jang.com.pk)

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The suspension is then spread uniformly across the full width of a moving endless screen. The screen travels over table rolls and suction boxes where water drums are driven by the effect of gravity and vacuum. The screen then passes under roll squeezing additional water from mat. The mat sheet then passes over to a woolen or synthetic cloth belt passing between batteries of press rolls. Here water is further squeezed out and the mat gets compacted. The water content is then further reduced by evaporate drying. This is followed by calendaring and collecting operations. Quality testing of the nature and susceptibility of the output to physical and chemical properties are carried out at this stage. The output is then converted into standard marketing size.

7.2.1 Recycling Process The final production process for recycling paper is the same as the process used for box board made from virgin fibres but, as the recovered paper fibres have already been used, they have to be cleaned. As a first step, recovered paper is sorted and graded then delivered to a paper board mill. Large non-fibrous contaminants are removed (for example staples, plastic, glass etc.). The fibres are progressively cleaned and then the pulp is filtered and screened through a number of cycles to make it more suitable for paper board making. The fibres have to be de-inked. The pulp is then ready to be made into paper or paper board. Depending on the grade of paper board being produced, quantities of virgin pulp from sustainable sources may be added. Some paper products, such as newsprint and corrugated materials, can be made from 100% recycled paper. Once the paper is used, it can be recycled and the process starts again. There are paper board products that cannot be either collected or recycled. The portion of such paper board products, which consist, for example, of cigarette papers, wallpaper, tissue papers and archives, is estimated to be about 19% of the total paper board consumption. In addition to non-collectable and non-recyclable paper products, it would not be economically or environmentally sound to collect and recycle everything. 7.2.2 Grades of Recovered Paper & Paper Board There are different grades of recovered paper and board to satisfy the needs of different producers, according to strict specifications. For example, it is not possible to take mixed recovered paper consisting of different paper grades (newspapers, cartons, corrugated boxes) to make printing and writing paper. Mixed recovered paper is best used in packaging grades. More than 50 grades of recovered paper and board are defined in the European Standard EN634. They can be described as follow:

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Low grades (mixed papers, old corrugated containers, board etc.) constitute the main part of the recovered paper consumed. These are used to produce packaging papers and boards. De-inking grades (newspapers and magazine, graphic papers etc.) are usually also considered as low grades. These are for graphic and sanitary papers. High grades (scraps, sheets, print off-cuts etc.) require little or no cleaning. They can be used for the production of any paper product as pulp substitute.

Modern recycling processes require little energy and the auxiliary materials involved are environmentally compatible. The contraries (the pins, staples, adhesives etc.) removed during the recycling process create a sludge which may be burned for energy recovery, put into landfill or used for other industrial purposes; they can be used as raw materials for other industries (for example land construction) or they can be spread on agricultural land.

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7. 3

FLOW CHART FOR BOX BOARD MANUFACTURING

Raw Material Sorting / Refining Water Mixing Screen Flow Stock Chest Pump Color Mixing Paper Machine Roller Dryers Rewinder Quality Inspection Finished Product

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7. 4

Plant Layout

7 15 8 6

9 5

10 4

14

11

13

12

1 2

1 2 3 4 5 6 7 8

Admin Block Raw Material Sorting Vessels / Water Mixing Screen Flow Stock Chest Pumps / Vaccume Color Mixing Paper Machine

9 10 11 12 13 14 15

Roller Boilers Pre-Dryer Yankee After Dryer Quality Inspection Store Room for Finish Product

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7. 5

Machinery Requirement

Following table shows the machinery & equipment requirement for setting up a Paper Board Manufacturing Unit. Sr. No. 1 2 3 4 5 6 7 8 9 10 11 Description Stock Preparation System Cylinder Mould Section Wire Part Press Part Pre-Dryer Yankee After Dryer Callender Pope Real Mechanical Workshop Boiler Total Qty 4 Total Amount 14,000,000 1,830,000 9,880,000 1,800,000 5,850,000 3,650,000 3,000,000 1,780,000 700,000 2,300,000 6,000,000 50,790,000

12 6

Following is the List of major suppliers of Paper Board Manufacturing Unit: International:
Sr.# 1 Name & Address RIVER MACHINERY CORPOPATION NO, 101, DUNG SHUEN ST., SHU LIN CITY, TAIPEI HSIEN, TAIWAN TEL: 886-2-86867648, 86867649, 86869268,86869269 FAX: 886-2-86868968 HTTP://WWW.H-F.COM.TW SHANGHAI LIGHT GOOD PAPERMAKING MACHINERY EQUIPMENT PLANT ADDRESS : SHANGHAI, CHING CHUNG HIGHWAY 3201, TEL : 021-59745501 021-59741988 FAX : 021-59741437 E-MAIL : [email protected] RAMESH INDUSTRIES MR. RAMESH CHANDRA D-122, INDUSTRIAL AREA, BS ROAD GHAZIABAD - 201 001, UTTAR PRADESH (INDIA) TEL : +(91)-(120)-2700791/2796264 EMAIL : [email protected] CMC International Industries Limited, China tel: 86-755-25712086,25713486,852-67274608 fax: 852-30145709,30147609 email1: [email protected] email2: [email protected]

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Local:
Sr.# 1 Name & Address Abdul Jabbar & Co 88-Railway Road, Lahore Ph: 042-7661871 Fax: 042-7636098 H.B sayyed (Pvt.) Ltd. 130-D. 1st Flr., Green View Apt., B0Commercial Area, Phase II, Defence, Karachi. Ph: 021-5896021 - 5895790 Fax: 021-5895941 MAQ Engineering Company Gondlanwala Road, Near Jinnah Road Chowk, Gujranwala Ph; 055-4230498 - 4230497 Al-Ahmad Enterprises 10-Bangali Street, Shahrah-e-Millat, Lahore Ph: 042-4121172 - 7121171 Fax: 042-712173

The machinery, equipment and accessories required for Box Board plant at Lahore are fabricated locally. Most advanced technology for drying parameter control, stock preparation system, head box, belt control and belt structure etc., is also used. For this purpose international suppliers are also available to produce finished products confirm to national as well as international standards. 7. 6 Other Fixed Assets Requirement

Following additional fixed assets are required for factory and management offices. 7.6.1 Office Equipment Items Fans & Lights Air-conditioning Computer Printer Laser Fax Networking Total Number 10 4 5 2 2 1 Unit Cost 3,000 25,000 20,000 25,000 25,000 100,000 Total Cost 30,000 100,000 100,000 50,000 50,000 100,000 430,000

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7.6.2 Furniture & Fixture Items Executive Table Computer Tables and others Sofas Chairs Carpet, Curtains, etc. Total 7. 7 Motor Vehicles Total Cost 1,000,000 650,000 1,340,000 2,990,000 Number 1 10 5 15 1 Unit Cost 25,000 6,500 10,000 4,000 25,000 Total Cost 25,000 65,000 50,000 60,000 25,000 225,000

The proposed project will also be following vehicles. Items Number Unit Cost 1300 CC Car 1 1,000,000 1000 CC Car 1 650,000 Loader 2 670,000 Total

LAND & BUILDING REQUIREMENT

8. 1. 1 L and Keeping in view the proposed capacity, approximately sixteen (16) Kanals of land i.e. seventy two thousand (72,000) square feet is sufficient to set up the Box board Plant. An amount of Rs.12,800,000 has been allocated for the acquisition of sixteen (16) Kanals land in the area of Lahore However, cost of land may vary according to location. 8. 1. 2 B ui l di ng The Construction for infrastructure will be carried on an area of 17,000 sq. ft. The rest of the area will be left uncovered. The total cost of construction is estimated at Rs.17 million. The proposed building will comprises of the following Admin Block Boilers Processing Section Dryer Vessels Re-winder Paper Board Machine Quality Inspection Roller Finished Products Store
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8. 2

Utilities Requirement

An industrial connection of natural gas is required at the plant site. Average daily consumption of the gas is 12 Hm3 for Box Board production. Natural gas has been charged at Rs. 850/Hm3. The factory site will be connected with a WAPDA power connection. Average daily consumption of electricity is 950 KW depending on the number of unit operations involved in the process. The costing has been done @ Rs. 6.50/unit.

9
9. 1

HUMAN RESOURCE REQUIREMENT

Human Resource Requirements

Following table shows the requirements of Human Resources in the Paper Board Manufacturing unit. Salaries and wages are assumed to grow at 10% per annum. Description MD Production Staff GM Factory Accountant Engineer Mechanic-cum electrician Skilled Workers Semi Skilled Workers Watchman & Gatekeeper Admin & Accounts Chief Accountant Accountant Sales Supervisor Driver Receptionist Production Staff Admin & Accounts TOTAL No. 1 1 1 3 1 10 15 4 1 1 2 2 1 Monthly Salary / Month (Rs.) 200,000 85,000 30,000 30,000 22,000 8,000 4,500 3,500 55,000 30,000 12,000 6,500 12,000 Per Year (Rs.) 2,400,000 1,020,000 360,000 1,080,000 264,000 960,000 810,000 168,000 660,000 360,000 288,000 156,000 144,000 4,662,000 4,008,000 8,670,000

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10 KEY ASSUMPTIONS
Plant Processing Capacity (Tones) Project Cost Inflation Rates Increase in Selling Price Processing days Raw Material-waste paper Requirements per Ton Raw Material-waste paper Requirements per Kg I ton Raw Material-waste paper Per Ton Chemicals / Ton Soap Stone per Kg Alum per Kg Caustic Soda per Kg Annual Processing Capacity in Ton Monthly Processing Capacity in Ton Processing Capacity/day in Ton Preparatory-Line Losses % Prepared Material Moisture Content Finish Product Per day Finish Product Per Year (Kg) Selling Price (in Rs.) Local Packing Cost per Ton Repair & Maintenance as % of Plant & Machinery Average Daily Consumption of Natural Gas Price of Gas / HM3 Average Daily Consumption of Electricity Cost of Electricity Per Ton Electricity Rate Per Unit Current Assets Receivables Raw Materials Stock Work in Process Store and Spares Current Liabilities Accounts Payable Utilities Payable
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14,000 88,270,000 10.0% 10.0% 360 1.22 1.22 1,000.00 Rs.7,500.00 Rs.3.50 Rs.12.00 Rs.22.00 14,000 1,167 39 22% 30 0% 30 10,920 Rs.22,000 Rs.50 5% 12 HM3 Rs.850 950 KW Rs.6,175.0 Rs.6.5 Basis 50 Days worth Sales 30 Days worth Raw Material 1 Day worth COGS 10.0% of machinery 20 Days worth Material Purchased One Month Bill

Pre-feasibility Study

Paper Board Manufacturing Unit

11 FINANCIAL ANALYSIS
11. 1 Land Land 16 Kanal @ 0.7 million per Kanal Project Development cost Building - Civil Works Machinery & Equipment Vehicles Office Equipments Furniture & Fixture Preliminary Expenses Utility Connections Charges Incorporation Charges Working Capital Total Assets Total Capital Employed By: Equity Contribution by Loan Total Capital including land Financial Viability IRR Payback Period NPV @ 15% 36.40% 3.75 Years 132,965,591 50% 50% 100% 4,135,000 4,135,000 88,270,000 17,000,000 50,790,000 2,990,000 430,000 225,000 12,800,000 Project Cost Rs. Rs.

71,435,000

1,000,000 35,000

1,035,000 3,000,000 88,270,000

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11. 2

Projected Income Statement

Year 1 108,108,000 60,042,399 48,065,601 7,131,834 6,678,500 207,000 14,017,334 34,048,267 2,648,100 2,648,100 31,400,167 1,201,958 30,198,209 30,198,209 30,198,209 Year 2 118,918,800 65,538,739 53,380,061 7,581,017 5,967,550 207,000 13,755,567 39,624,494 4,878,079 4,878,079 34,746,415 13,006,180 21,740,235 30,198,209 51,938,443 51,938,443 Year 3 145,345,200 78,142,640 67,202,560 8,339,119 5,345,270 207,000 13,891,389 53,311,171 4,320,584 4,320,584 48,990,587 17,913,841 31,076,746 51,938,443 83,015,189 83,015,189 Year 4 159,879,720 85,499,794 74,379,926 9,173,031 4,798,185 207,000 14,178,216 60,201,710 3,763,089 3,763,089 56,438,620 20,450,298 35,988,322 83,015,189 119,003,511 119,003,511 Year 5 193,454,461 101,441,159 92,013,303 10,090,334 4,315,338 207,000 14,612,672 77,400,630 3,205,595 3,205,595 74,195,036 26,601,406 47,593,629 119,003,511 166,597,141 166,597,141 Year 6 232,145,353 119,530,669 112,614,685 11,099,368 3,887,732 14,987,100 97,627,585 2,648,100 2,648,100 94,979,485 33,818,388 61,161,097 166,597,141 227,758,238 227,758,238 Year 7 276,639,880 140,491,078 136,148,801 12,209,304 3,528,609 15,737,913 120,410,888 2,090,605 2,090,605 118,320,283 41,876,156 76,444,127 227,758,238 304,202,365 304,202,365 Year 8 304,303,867 154,169,927 150,133,941 13,430,235 3,184,139 16,614,373 133,519,567 1,533,111 1,533,111 131,986,457 46,616,794 85,369,662 304,202,365 389,572,027 389,572,027 Year 9 360,483,043 180,543,195 179,939,848 14,773,258 2,877,841 17,651,099 162,288,749 975,616 975,616 161,313,133 56,842,915 104,470,218 389,572,027 494,042,245 494,042,245 Year 10 396,531,347 198,264,281 198,267,066 16,250,584 2,604,704 18,855,288 179,411,778 418,121 418,121 178,993,657 62,996,681 115,996,976 494,042,245 610,039,221 610,039,221

Sales Cost of Sales Gross Profit Operating Expenses: Operating Expenses Depreciation Amortization Operating Profit Interest on Loan Interest on Lease Profit before Tax Taxation (see working) Profit after Tax Balance B/F Retained Earnings Balance C/F

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11. 3

Projected Cash-flow Statement

1 31,400,167 6,678,500 207,000 6,885,500 38,285,667 2 34,746,415 5,967,550 207,000 6,174,550 40,920,965 4,645,789 13,006,180 17,651,969.64 23,268,995 1,431,039 21,837,956 19,919,638 3 48,990,587 5,345,270 207,000 5,552,270 54,542,857 4,645,789 17,913,841 22,559,630.02 31,983,227 3,888,730 28,094,497 41,757,594 4 56,438,620 4,798,185 207,000 5,005,185 61,443,805 4,645,789 20,450,298 25,096,087.30 36,347,718 2,116,674 34,231,044 69,852,091 5 74,195,036 4,315,338 207,000 4,522,338 78,717,374 4,645,789 26,601,406 31,247,196 47,470,178 4,944,462 42,525,716 104,083,135 6 94,979,485 3,887,732 3,887,732 98,867,217 4,645,789 33,818,388 38,464,178 60,403,040 5,713,345 54,689,695 146,608,851 7 118,320,283 3,528,609 3,528,609 121,848,892 4,645,789 41,876,156 46,521,945 75,326,946 6,561,418 68,765,528 201,298,546 8 131,986,457 3,184,139 3,184,139 135,170,595 4,645,789 46,616,794 51,262,584 83,908,011 4,045,439 79,862,573 270,064,074 9 161,313,133 2,877,841 2,877,841 164,190,974 4,645,789 56,842,915 61,488,705 102,702,270 8,289,381 94,412,889 349,926,646 10 178,993,657 2,604,704 2,604,704 181,598,361 4,645,789 62,996,681 67,642,471 113,955,891 5,276,864 108,679,027 444,339,535

SOURCES FROM OPERATION Profit Before Tax Add: Depreciation Amortization

APPLICATION Capital Expenditure Repayments of Loan Tax Payment Dividend Paid Surplus / (Deficit) Increase/(Decrease) In Working Capital Net Increase/(Decrease) Opening Bank Balances Closing Cash Balance WORKING CAPITAL Increase (decrease)

2,322,895 1,201,958 3,524,853.19 34,760,814 17,841,176 16,919,638 3,000,000

19,919,638 17,841,176 17,841,176

41,757,594 19,272,214 1,431,039

69,852,091 23,160,944 3,888,730

104,083,135 25,277,618 2,116,674

146,608,851 30,222,080 4,944,462

201,298,546 35,935,425 5,713,345

270,064,074 42,496,844 6,561,418

349,926,646 46,542,283 4,045,439

444,339,535 54,831,664 8,289,381

553,018,562 60,108,527 5,276,864

33 PREF-98/June, 2006/ Rev 1

Pre-feasibility Study

Paper Board Manufacturing Unit

11. 4
YEAR Fixed Assets Preliminary Exp. Current Assets Acc. Receivables Raw Mat. Stock Work in Process Advances & Prepayments Cash Balances Total Assets Share Capital* Unapp. Profit Long Term Liabilities Long Term Loan Current Liab. Creditors TOTAL
*

Projected Balance Sheet

Start up 84,235,000 84,235,000 1,035,000 85,270,000 3,000,000 3,000,000 88,270,000 44,135,000 44,135,000 1 77,556,500 77,556,500 828,000 78,384,500 15,015,000 3,746,925 166,784 2,248,155 19,919,638 41,096,503 119,481,003 44,135,000 30,198,209 74,333,209 2 71,588,950 71,588,950 621,000 72,209,950 16,516,500 4,121,618 26,983 2,248,155 41,757,594 64,670,850 136,880,800 44,135,000 51,938,443 96,073,443 3 66,243,680 66,243,680 414,000 66,657,680 20,186,833 5,037,533 29,681 2,248,155 69,852,091 97,354,293 164,011,973 44,135,000 83,015,189 127,150,189 4 61,445,495 61,445,495 207,000 61,652,495 22,205,517 5,541,286 32,649 2,248,155 104,083,135 134,110,742 195,763,237 44,135,000 119,003,511 163,138,511 5 57,130,157 57,130,157 57,130,157 26,868,675 6,704,956 35,914 2,248,155 146,608,851 182,466,551 239,596,708 44,135,000 166,597,141 210,732,141 6 53,242,424 53,242,424 53,242,424 32,242,410 8,045,947 39,506 2,248,155 201,298,546 243,874,564 297,116,988 44,135,000 227,758,238 271,893,238 7 49,713,816 49,713,816 49,713,816 38,422,205 9,588,087 43,456 2,248,155 270,064,074 320,365,977 370,079,793 44,135,000 304,202,365 348,337,365 8 46,529,677 46,529,677 46,529,677 42,264,426 10,546,895 47,802 2,248,155 349,926,646 405,033,925 451,563,602 44,135,000 389,572,027 433,707,027 9 43,651,836 43,651,836 43,651,836 50,067,089 12,494,015 52,582 2,248,155 444,339,535 509,201,376 552,853,212 44,135,000 494,042,245 538,177,245 10 41,047,132 41,047,132 41,047,132 55,073,798 13,743,416 57,840 2,248,155 553,018,562 624,141,772 665,188,904 44,135,000 610,039,221 654,174,221

44,135,000 44,135,000 88,270,000

41,812,105 41,812,105 3,335,689 3,335,689 119,481,003

37,166,316 37,166,316 3,641,041 3,641,041 136,880,800

32,520,526 32,520,526 4,341,258 4,341,258 164,011,973

27,874,737 27,874,737 4,749,989 4,749,989 195,763,237

23,228,947 23,228,947 5,635,620 5,635,620 239,596,708

18,583,158 18,583,158 6,640,593 6,640,593 297,116,988

13,937,368 13,937,368 7,805,060 7,805,060 370,079,793

9,291,579 9,291,579 8,564,996 8,564,996 451,563,602

4,645,789 4,645,789 10,030,177 10,030,177 552,853,212

11,014,682 11,014,682 665,188,904

4,413,500 Shares @ Rs.10/- each

34 PREF-98/June, 2006/ Rev 1

Pre-feasibility Study

Paper Board Manufacturing Unit

12 ANNEXURES

Annexure #

Revenue Calculation

Description Annual Processing Capacity in Ton Monthly Processing Capacity in Ton Processing days Processing Capacity per day Preparatory-Line Losses % Prepared Material Finish Product Per day Finish Product Per Year (Ton) Selling Price (in Rs.) /Ton

Box Board 14,000 1,167 360 39 22% 30 30 10,920 Rs.22,000

Annexure #

COGS Calculation

Description Processing days Processing Capacity per day Price of Packeging per Ton Waste Paper Per Ton Chemicals Soap Stone Alum Caustic Soda Per Ton Annual Increase

Box Board 360 39 Rs.50 7,500 Rs.3.50 Rs.12.00 Rs.22 10.0%

35 PREF-98/June, 2006/ Rev 1

Pre-feasibility Study

Paper Board Manufacturing Unit

Annexure #
HS Code (1) 4802.6100 4802.6200

Custom Duties and Taxes

CD% (3) 20(4) 20(4) (3) 20 20 20 20 20 20 10 20 20 20 20 20(3) 15 15 15 15 15 15 15 15 15 15 15 15 Kg. Kg. Kg. Kg. Kg. Kg. Kg. Kg. Kg. Kg. Kg. Kg. ST% (4) 15 15 Unit (5) Kg. Kg.

48.05 4805.1100 4805.1200 4805.1900 4805.2400 4805.2500 4805.3000 4805.4000 4805.5000 4805.9100 4805.9200 4805.9300 4807.0000

48.08

4808.1000 4812.0000 48.13 4817.3000

48.19

4819.1000 4819.2000

Description (2) --In rolls --In sheets with one side not exceeding 435 mm and the other side not Other uncoated paper and paperboard, in rolls or sheets not further --Semi-chemical fluting paper --Straw fluting paper --Other -Testliner (recycled liner board) : --Weighing 150 g/ m or less --Weighing more than 150 g/ m -Sulphite wrapping paper -Filter paper and paperboard -Felt paper and paperboard - Other : --Weighing 150 g/ m or less --Weighing more than 150 g/ m but less than 225 g/ m --Weighing 225 g/ m or more. Composite paper and paperboard (made by sticking flat layers of paper or paperboard together with an adhesive), not surface- coated or impregnated, whether or not internally reinforced, in rolls or sheets. Paper and paperboard, corrugated (with or without glued flat surface sheets), creped, crinkled, embossed or perforated, in rolls or sheets, other than paper of the kind described in heading 48.03. -Corrugated paper and paper board,whether or not perforated Filter blocks, slabs and plates, of paper pulp. Cigarette paper, whether or not cut to size or in the form of booklets or -Boxes, pouches, wallets and writing compendiums, of paper or paperboard, containing an assortment of paper stationery Cartons, boxes, cases, bags and other packing containers, of paper, paperboard, cellulose wadding or webs of cellulose fibres; box files, letter trays, and similar articles, of paper or paperboard of a kind used in offices, shops or the like. -Cartons, boxes and cases, of corrugated paper or paperboard -Folding cartons, boxes and cases, of non corrugated paper or

(3)

25 20 (3) 25

15 15

Kg. Kg.

15

Kg.

25 25

15 15

Kg. Kg.

36 PREF-98/June, 2006/ Rev 1