Financial feasibility study of investment new ammonia plant for PVFCCO

FINANCIAL FEASIBILITY STUDY OF INVESTMENT NEW AMMONIA PLANT FOR PVFCCO In Partial Fulfillment of the Requirements of the Degree of MASTER OF BUSINESS ADMINISTRATION In Finance Major By Mr. Tran Vinh Loc ID: MBA 02014 International University - Vietnam National University HCMC March 2013 FINANCIAL FEASIBILITY STUDY OF INVESTMENT NEW AMMONIA PLANT FOR PVFCCO In Partial Fulfillment of the Requirements of the Degree of MASTER OF BUSINESS ADMINISTRATION by Mr. Tran Vinh Loc ID: MBA 02014 International University - Vietnam National University HCMC March 2013 Under the guidance and approval of the committee, and approved by all its members, this thesis has been accepted in partial fulfillment of the requirements for the degree. Approved: Dr. Vuong Hung Cuong ---------------------------------------------Chairperson --------------------------------------------Committee member ---------------------------------------------Committee member --------------------------------------------Committee member ---------------------------------------------Committee member --------------------------------------------Committee member Page ii ACKNOWLEDGEMENT This thesis would not have been possible without the guidance and the help of several individuals who in one way or another contributed and extended their valuable assistance in the preparation and completion of this study. First and foremost, I offer my sincerest gratitude to my advisor, Dr Vuong Hung Cuong –Lecturer of International University, who has provided tremendous support throughout my thesis with his endless patience and in-depth knowledge whilst allowing me the room to work in my own way. Throughout the course of my thesis, he has constantly given me guidance on how to achieve the best results for my research and how to transform those into a good thesis. I attribute this thesis to his encouragement and effort and without him, it would not be successfully completed. Dr. Nguyen Van Phuong and Dr. Le Vinh Trien have been very encouraging and supportive. They have extended their help at various phases of this research, giving quality advices on how to improve my thesis, and I do hereby express my gratitude to them. It’s my honor to attend the graduated program at the School of Business of International University. With engineering background, understanding economic subjects is a challenge. I owe my warmest thanks to my professors for the last two years for giving me the guidance and knowledge and for making my time here a wonderful experience. Secondly, I am obliged to the Research and Development Center for Petroleum Processing (PVPro) and my colleges there for their contribution and support. They have provided me great information resources and allowed me to use a wide-ranged database which helps me in the completion of this project. Last but not least, I am forever indebted to my beloved wife and daughters for their blessings, encouragement and understanding when it was most required. Page iii PLAGIARISM STATEMENTS I would like to declare that, apart from the acknowledged references, this thesis either does not use language, ideas, or other original material from anyone; or has not been previously submitted to any other educational and research programs or institutions. I fully understand that any writings in this thesis contradicted to the above statement will automatically lead to the rejection from the MBA program at the International University – Vietnam National University Hochiminh City. Page iv COPYRIGHT STATEMENT This copy of the thesis has been supplied on condition that anyone who consults it is understood to recognize that its copyright rests with its author and that no quotation from the thesis and no information derived from it may be published without the author’s prior consent. © Tran Vinh Loc/ MBA 02014/ 2010-2012 Page v CONTENTS ACKNOWLEDGEMENT ....................................................................................................... iii PLAGIARISM STATEMENTS ............................................................................................. iv COPYRIGHT STATEMENT .................................................................................................. v CONTENTS.............................................................................................................................. vi LIST OF TABLES ................................................................................................................... ix LIST OF FIGURES .................................................................................................................. x ABSTRACT .............................................................................................................................. xi CHAPTER I. INTRODUCTION ....................................................................................... 1 I.1 Problem Statement ......................................................................................................... 1 I.2 Thesis topic .................................................................................................................... 3 I.3 Rationale ........................................................................................................................ 3 I.3.1 Demand ................................................................................................................. 3 I.3.2 Supply ................................................................................................................... 4 I.3.3 Demand/Supply Balance ....................................................................................... 4 I.4 Objectives ...................................................................................................................... 4 I.5 Contents and Research Question ................................................................................... 4 I.6 Scope and Limitation ..................................................................................................... 5 I.7 Thesis Structure ............................................................................................................. 5 CHAPTER II. LITERATURE REVIEW ........................................................................... 7 II.1 Overview about Feasibility Study.................................................................................. 7 II.1.1 What is a feasibility study? ................................................................................... 7 II.1.2 Expected accuracy range in FS stage .................................................................... 9 II.2 Market research ............................................................................................................ 11 II.3 Price forecast ................................................................................................................ 12 II.3.1 “Price = Cost + Margin” methodology ............................................................... 12 II.3.2 Long term average methodology ....................................................................... 14 II.3.3 Moving average methodology ............................................................................ 15 II.3.4 Regression correlation methodology .................................................................. 15 II.4 Cash flow and financial indicators calculation ............................................................ 16 II.4.1 Cash flow calculation .......................................................................................... 16 II.5 WACC calculation ....................................................................................................... 17 II.5.1 WACC formula ................................................................................................... 17 II.5.2 Cost of equity (re) ................................................................................................ 17 II.5.3 Cost of debt (rd)................................................................................................... 18 Page vi II.6 Calculation of financial indicators ............................................................................... 18 CHAPTER III. METHODOLOGY.................................................................................... 21 III.1 Market research methodology...................................................................................... 21 III.1.1 Formulate the problem - Research Objectives .................................................... 21 III.1.2 Research design and Data collection form.......................................................... 21 III.1.3 Determine the sample size .................................................................................. 25 III.2 Investment cost estimation methodology..................................................................... 25 III.3 Product price forecast .................................................................................................. 26 III.4 Financial indicators calculation methodology ............................................................. 26 CHAPTER IV. FINDING AND SOLUTIONS.................................................................. 28 IV.1 Feedstock and Product ................................................................................................. 28 IV.1.1 Ammonia domestic market ................................................................................. 28 IV.1.2 Forecast product price ......................................................................................... 33 IV.1.3 Feedstock ............................................................................................................ 38 IV.1.4 Competitors ......................................................................................................... 43 IV.1.5 SWOT analysis ................................................................................................... 45 IV.2 Total investment cost ................................................................................................... 46 IV.2.1 Construction cost ................................................................................................ 46 IV.2.2 Equipment cost.................................................................................................... 47 IV.2.3 Owner’s project management cost ...................................................................... 48 IV.2.4 Project consultancy cost ...................................................................................... 48 IV.2.5 Miscellaneous ..................................................................................................... 49 IV.2.6 Provision for Contingency .................................................................................. 50 IV.2.7 Initial working capital ......................................................................................... 50 IV.2.8 Financial cost in construction stage .................................................................... 50 IV.2.9 Estimated total investment cost .......................................................................... 51 IV.3 Economic efficiency calculation .................................................................................. 51 IV.3.1 Basis for assessment ........................................................................................... 51 IV.3.2 Economic result .................................................................................................. 54 IV.4 Risk factors and sensitivity analysis ............................................................................ 56 IV.4.1 Risk of exchange rate .......................................................................................... 56 IV.4.2 Risk of product price ........................................................................................... 56 IV.4.3 Risk of feedstock price........................................................................................ 57 IV.4.4 Risk of investment cost ....................................................................................... 57 IV.4.5 Risk of domestic market share lost ..................................................................... 57 Page vii IV.4.6 Sensitivity analysis.............................................................................................. 57 CHAPTER V. CONCLUSIONS AND RECOMMENDATIONS .................................. 60 V.1 Conclusions .................................................................................................................. 60 V.2 Recommendations ........................................................................................................ 62 REFERENCES ........................................................................................................................ 63 APPENDIX 1- Total Investment Cost................................................................................... 65 APPENDIX 2- Debt and Payment ......................................................................................... 66 APPENDIX 3- Cashflow......................................................................................................... 67 APPENDIX 4- Income Statement.......................................................................................... 69 APPENDIX 5- Ammonia market survey answers ............................................................... 74 AMMONIA MARKET QUESTIONNAIRE - PVFCCo ..................................................... 74 AMMONIA MARKET QUESTIONNAIRE – Camau Fertilizer Plant ............................ 76 AMMONIA MARKET QUESTIONNAIRE – F.A Company ............................................ 78 AMMONIA MARKET QUESTIONNAIRE – Vedan Limited JSC .................................. 80 AMMONIA MARKET QUESTIONNAIRE - Ajinomoto .................................................. 82 AMMONIA MARKET QUESTIONNAIRE – Dinh Vu DAP ............................................ 84 AMMONIA MARKET QUESTIONNAIRE – Lao Cai DAP ............................................. 86 Page viii LIST OF TABLES Table III.1: Respondent selection ................................................................................. 22 Table IV.1 Domestic potential customer ...................................................................... 28 Table IV.5 Indirect costs .............................................................................................. 47 Table IV.6 Process equipment cost .............................................................................. 47 Table IV.7 Escalation of total investment .................................................................... 50 Table IV.8 Initial Working capital ............................................................................... 50 Table IV.9 Financial cost in construction stage ........................................................... 50 Table IV.10 Estimated total investment cost ................................................................ 51 Table IV.11 Forecast Ammonia price .......................................................................... 51 Table IV.12 Corporate income tax rate ....................................................................... 52 Table IV.13 Annual wages and salaries estimate ........................................................ 53 Table IV.14 Site leasing cost ....................................................................................... 53 Table IV.15 Revenue and cost for the first year of operating at 100% capacity (2017) ...................................................................................................................................... 54 Table IV.16 Sensitivity analysis of Ammonia price ................................................... 58 Table IV.17 Sensitivity analysis of Total investment cost ........................................... 58 Table IV.18 Sensitivity analysis of Total investment cost .......................................... 59 Page ix LIST OF FIGURES Figure I.1 Domestic demand of Ammonia over the period 2005-2010 ......................... 3 Figure I.2 Scope of feasibility study............................................................................... 5 Figure II.1 AACE’s generic cost estimate classification matrix .................................. 11 Figure II.2 Price forecast model ................................................................................... 12 Figure IV.1. Domestic Ammonia Demand from 2012-2016 ....................................... 31 Figure IV.2 Ammonia import classified by country in 2010 ....................................... 32 Figure IV.3 Ammonia import classified by region in the period 2005 – 2010 ............ 32 Figure IV.4 Ammonia and WTI crude oil price over the period 1995 – 2011 ............. 33 Figure IV.5 Correlation between Ammonia price and WTI crude oil price in the period 1995 – 2011 .................................................................................................................. 34 Figure IV.6 WTI crude oil price forecast (real 2010 dollars per barrel) ...................... 35 Figure IV.7 WTI crude oil nominal price forecast to 2025 .......................................... 36 Figure IV.8 Ammonia price forecast over the period 2012 – 2025 ............................. 36 Figure IV.9 Ammonia price forecast over the period 2012 – 2025 ............................. 37 Figure IV.10 Southern pipeline systems development orientation .............................. 39 Figure IV.11 Gas supply from fields in exploiting, developing and preparing development of Cuu Long basin and Nam Con Son basin in the period 2011-2025 ... 40 Figure IV.12 Gas supply – demand balance in Southeast region in the period 2011 – 2025 with the gas resource is from fields in exploiting, developing and preparing development of Cuu Long basin and Nam Con Son basin........................................... 40 Figure IV.13 Supply – demand balance on potential supply in the period 2011-2039 42 Figure IV.14 Natural gas price ..................................................................................... 43 Figure IV.15 Ammonia Delivered Cost to South Korea .............................................. 44 Figure IV.16: Historical exchange rate ........................................................................ 56 Figure IV.17: Sensitivity analysis ................................................................................ 58 Page x ABSTRACT The strategy, planning and orientation of Vietnam relating to Ammonia production and the preliminary Ammonia market study have pointed that investing in an Ammonia plant is important at this time and will be a good opportunity for Phu My Fertilizer and Chemicals Company to leap into a new phase of development. A financial feasibility study therefore is an essential step in order to confirm where or not investing a new ammonia plant will be financially beneficial and feasible. Detailed market research have shown that the amount of domestic Ammonia deficit will be approximately 500 KT in 2016 to 561 KT in 2020 and more than 660 KTPA from 2025 onwards. At the same time, the Ammonia deficit is estimated around 2.54 million metric tons in 2011, and then increases from 4 million metric tons in 2020 to 5.8 million metric tons in 2040. Therefore, with expected capacity of 450 thousand metric tons of Ammonia every year, the products from the new Ammonia plant will be supplied to domestic customers and the rest will be exported to countries in demand like South Korea. In addition, natural gas resources are also available for this capacity of the Ammonia plant. The total investment cost (TIC) is estimated based on construction cost, equipment cost, management cost, project consultancy cost, miscellaneous cost and contingency and escalation cost. Without VAT, the TIC is estimated to be $396M and the TIC including VAT is $469M. This study also evaluates the financial effectiveness based on financial indicators like IRR, NPV and Pay-back period These results show that the IRR is 30% , NPV is 1.5 billion USD and the total pay-back period is 3 years and 9 months. These financial indicators prove that the project of investing an Ammonia plant is financially feasible and beneficial. Keywords: financial feasibility study, ammonia plant Page xi Page xii CHAPTER I. INTRODUCTION I.1 Problem Statement In the last ten years, Vietnam has started to develop petrochemical industry to utilize the gas resource effectively. The Vietnam Gas and Oil Group, under the Government’s orientation, have invested in several petrochemical projects, such as plastics, textiles, fertilizers and chemicals, etc. Out of all the projects, Phu My Fertilizer Plant, which came into operation in 01/19/2004, has stood out as a very successful project. The Petrovietnam Fertilizer Company (PVFCCo) was established with the main functions and duties of managing and operating Phu My Fertilizer Plant effectively, producing and trading urea fertilizer, liquid ammoniac, industrial gas and other chemical products. Today, PVFCCo production satisfies roughly 50% of the total urea domestic demand (total domestic demand is from 1.6 – 1.8 million tons per year) and about 40% of the liquid ammoniac. With seven subsidiaries, assets of 7,419 billion VND (2,593 billion VND fixed capital and 4,826 billion VND working capital), profit before tax of 1,922 billion VND, PVFCCo is in good shape to conduct its development strategy and attain further achievements in the future (PVFCCo, 2011]. One of PVFCCo’s goals is to develop PetroVietnam Fertilizer and Chemicals Jointstock Company to become a strong multi-sector enterprise by diversifying important chemicals production (including basic chemicals, petrochemicals, fertilizers, agricultural chemicals). Based on the market demand, the ability of technology satisfaction, and joint challenges of the chemical industry in Vietnam together with existing conditions and resources of PVFCCo, basic objectives and prospects for future development focus on developing Purified hydrogen, Hydrogen peroxide, Carbon dioxide, Ammonia, Nitric acid, etc. These chemicals are given priority in development strategy from now to 2015 and towards 2025 and considered based on deep processing of natural gas, synchronous development and deep processing of many kinds of fertilizers. They are used for agricultural chemicals production serving for advanced and sustainable agricultural development. Considering the financial situation, the development strategy, the experiences of operating a urea plant, which includes an ammonia unit and a urea unit and recognizing the importance of producing Ammonia to substitute the imported products and to actively supply materials for production of Ammonium Nitrate which is the main material for explosive production for national security, PVFCCo has strong interest in investing an ammonia plant at this point. From bigger view, the investment of Ammonia manufacturing plant is also an important project in supplying raw material for fertilizers, chemicals, petrochemical and defense industry in order to meet domestic demand as well as distributing a competitive product over the regional market according to targets mentioned in strategies, master plans approved by the Political Bureau and Government (According to Decision No. 343/2005/QĐ-TTg, No. 459/2011/QĐ-TTg, No. 386/2006/QĐ-TTg, No. 150/2007/QĐ-TTg, No. 06-NQ/TW, No. 6868/2010/QĐ-BCT, No. 1538/TBDKVN). As a feedstock, Ammonia will be used to produce ammonium nitrate, which is material for industrial explosive to meet the needs of mining, infrastructure Page 1 construction, security and defense of the country. It’s also used to produce nitric acid, other chemicals and petroleum chemicals such as melamine, agricultural chemicals, synthetic fibers, solvents and rubber processing, food processing, etc. In the future, Ammonia plant will open the possibility to develop other chemicals such as methanol, sodium carbonate, ammonium chloride based on using the CO2 co-production in the Ammonia production. An Ammonia plant will directly contribute to the development stage of the downstream petroleum industry, deep processing of natural gas, diversification of products, in the purpose of: - Enhancing the value of domestic natural gas resources several times higher compare with using gas for electricity or gas as fuel; - Substituting the imported Ammonia, saving average 280 million USD each year; - Providing materials stably, creating the active position, making the premise to promote the development of national defence industry, fertilizer, chemical, resin, textile, explosive, freezing agent producing industries and supporting service industries; - Enhancing revenue, profit, position and contributing to national budget of Investor; - Contributing to national budget and enhancing revenue, profit and position of Investor; - Realizing the objectives of approved strategies and plans of national defence industry, petroleum, fertilizer, chemical industry as well as of the cities, provinces; - Contributing significantly to local, regional and national economic restructuring towards increasing the proportion of producing and processing industry; - Promoting experience of highly qualified labours who have the ability in managing, operating, servicing, maintaining from Phu My and Ca Mau Fertilizer Plants; - Promoting regional and national development, creating jobs and developing infrastructure; - Contributing effectively to the national industrialization and modernization and ensure the national security and defence. In general, a new ammonia plant will bring many benefits to PVFCCo as well as meet the development strategy of PVFCCo, Vietnam Oil and Gas Group as well as the Government. However, even with strong belief and good reasons, building a new ammonia plant is still a big investment for PVFCCo and will greatly affect the development orientation of the company, the financial situation and the company’s position in fertilizers and chemicals fields. A decision made without research can be costly. A feasibility study will help to reduce the risk of making poor decisions and Page 2 increases the chance of success. A feasibility study of investment a new ammonia plant is essential in order to provide. I.2 Thesis topic A feasibility study of investment a new ammonia plant is essential in order to provide PVFCCo an overview of the strengths and weaknesses of the company, the opportunities and threads presented by the environment, the resources required and ultimately the prospects for success. In simple words, a financial feasibility study will analyze and estimate the cost required and present the value and the benefits to be attained in building a new ammonia plant. With that reason, this research will focus on “Financial feasibility study of investment of a new ammonia plant for PVFCCo.” I.3 Rationale Prior to doing a feasibility study for the investment of a new ammonia plant, the necessity of investment was carefully evaluated based on preliminary ammonia market survey. I.3.1 Demand Domestic demand for Ammonia surged from 542 thousand metric tons in 2005 to 697 thousand metric tons in 2010. There was an increase in domestic Ammonia demand including for production of DAP, MSG and other fields beside Urea production from 77 thousand tons (KT) to 114 thousand tons during the same period. The start-up of Dinh Vu DAP Plant has been a driven factor for the growth of domestic Ammonia demand since 2009. During the period 2005 - 2010, Ammonia demand for MSG production slightly increased with the annual average growth rate (AAGR) of 2%, while that for others almost unchanged. Southern market was occupied for 67 % of total domestic demand, followed by Northern market with 33%. Figure I.1 Domestic demand of Ammonia over the period 2005-2010 Page 3 Due to the population growth together with the orientation of exporting agricultural products, projects for fertilizers production is expected to continue increasing from 2025 onwards. According to Decision No. 6868/QĐ/BCT of Ministry of Industry and Trade and current situation, domestic Ammonia demand is forecast over 560 KT in 2020 and more than 660 KT in 2025. I.3.2 Supply By 2010, there have been two Ammonia manufacturing plants namely Ha Bac Nitrogen Fertilizers and Chemicals Company and Phu My Fertilizer Plant in Vietnam, with total supply approximately 615 KT of Ammonia. However, both of them are integrated with Urea facilities. Domestic supply for Ammonia, therefore, only meets other fields demand (excluding Urea) in the case that Urea facility is suspended but Ammonia unit does still operates. The Ammonia surplus was relatively small, satisfied nearly 28 % of total demand in 2010, and then fell down to 6 % in 2011 since Phu My Fertilizer Plant has invested Carbon dioxide recovery system and revamped Urea nameplate capacity up to 800 KTPA. In the future, other nitrogen fertilizer plants about to come on stream such as Ca Mau, Cong Thanh, or Ninh Binh are not designed to have Ammonia surplus to supply for market. Thus, domestic Ammonia supply is expected not to meet demand for other areas excluding Urea. I.3.3 Demand/Supply Balance The amount of Ammonia deficit was about 83 KT in 2010, and expected to increase from approximately 500 KT in 2016 to 561 KT in 2020 and more than 660 KTPA from 2025 onwards in order to meet the demand of MSG manufacturers, current DAP plants, proposed Ammonium Nitrate facilities, and scheduled DAP, SA plants according to Decision No. 6868/QD-BCT as well as other industries. Thus, if there is not any project for constructing Ammonia manufacturing plant, import will be the main source to supply Ammonia for Vietnam. In summary, investment of a new ammonia plant will follow the strategy and master plants of the Government; will contribute to the petroleum and gas industry as well as the chemicals and fertilizers industry. Besides that, building a new ammonia plant at this point will supply the lacked ammonia in domestic market in the upcoming years. I.4 Objectives The purpose of the thesis is to conduct a financial feasibility study on building a new ammonia production plant, encompassing the following concerns:  Understand theories and research papers on financial feasibility study of a project;  Evaluate the feasibility of the ammonia project in Vietnam in the fields of: o Feedstock supply and product market; o Total Investment Cost and Economic Efficiency. I.5 Contents and Research Question During the feasibility study stage, the following questions need to be answered: Page 4  Is there a market for the final product?  Is the feedstock supply secured for the lifetime of the project?  Is the project financially, economically and socially feasible?  What are the main risks?  Will this project go on the next stage? In order to answer these questions, the contents will cover:  Market Analysis;  Financial analysis;  Economic analysis. I.6 Scope and Limitation In general, a feasibility study composes of the following steps: Figure I.2 Scope of feasibility study Since some parts of this feasibility study (Technology selection, Site selection, Environmental Impact Assessment,..) have already done by my colleagues, the content will concentrate on the Feedstock & Product Market Analysis, Investment Cost Estimation and Economic Efficiency Evaluation. I.7 Thesis Structure Page 5 The thesis will contain the following main contents: Chapter 1- Introduction: This chapter will go over the problem statement, the rationale, the objectives as well as the scope and limitation; Chapter 2 – Literature Review: To answer the questions that are stated in the first chapter, the author will present a review of literature for related problems; Chapter 3 – Methodology: This chapter introduces the market research methodology, product price forecast methodology, how to calculate the investment cost and how to analyze the financial indicators; Chapter 4 – Findings and Solutions: This chapter will present all the findings and solutions such as product market, feedstock supply, price prediction, total investment cost and risk factor and sensitivity analysis; Chapter 5 – Conclusions and Recommendations: Based on the findings from chapter 4, this chapter will summarize the answers to all the research questions stated in Chapter 1. Recommendations are also made to the investor. Page 6 CHAPTER II. LITERATURE REVIEW II.1 Overview about Feasibility Study II.1.1 What is a feasibility study? A feasibility study’s main goal is to assess the economic viability of the proposed business. The feasibility study needs to answer the question: “Does the idea make economic sense?” The study should provide a thorough analysis of the business opportunity, including a look at all the possible roadblocks that may stand in the way of the cooperative’s success. The outcome of the feasibility study will indicate whether or not to proceed with the proposed venture. If the results of the feasibility study are positive, then the cooperative can proceed to develop a business plan. If the results show that the project is not a sound business idea, then the project should not be pursued. Although it is difficult to accept a feasibility study that shows these results, it is much better to find this out sooner rather than later, when more time and money would have been invested and lost. It is tempting to overlook the need for a feasibility study. Often, the steering committee may face resistance from potential members on the need to do a feasibility study. Many people will feel that they know the proposed venture is a good idea, so why carry out a costly study just to prove what they already know? The feasibility study is important because it forces the investor to put its ideas on paper and to assess whether or not those ideas are realistic. It also forces the investor to begin formally evaluating which steps to take next. The investor’s organizers will typically hire a consultant to conduct the feasibility study. Because the consultant is independent of the cooperative, he or she is in a better position to provide an objective analysis of the proposed venture. The consultant should have a good understanding of the industry as well as the new generation cooperative model of business. He or she should have previous experience in directly related work. A feasibility study should examine three main areas: - Market issues;  Technical and organizational requirements;  Financial overview. Market issues: The primary area that the feasibility study needs to address is potential market opportunities for the cooperative. If an adequate level of demand does not exist for the product and the investor does not know how to differentiate its product so that it can compete with established industry players, then the proposed venture should not be pursued. Questions that need to be answered in this area of the feasibility study include: Page 7 What type of industry is the investor planning to enter? What are its primary features? What are the possible target markets for the investor’s product? What demographic characteristics do they possess? How large are these markets? Where are they located? Is the market expected to grow in the future? Will the investor be competing in a mature industry or a growth industry? Who are the investor’s competitors in this market? How large are these competitors? How established are they? How do they price their goods? How will these competitors react to the entrance of the investor? How will the investor differentiate its product from those of its competitors? What are the competitors’ strengths and weaknesses, and how would the investor compare against them? How does the investor plan on gaining market share? What is the projected market share for the investor? Data that can help to answer these questions may be found in already-published information or through primary research activities such as market surveys conducted on behalf of the investor. Relevant information may be found through various sources such as government statistical publications, trade journals, industry reports, or consultant companies. The Internet has also opened up new routes to obtaining information. The answers to market-related questions should help the investor develop realistic estimates of the projected demand for the investor’s product for the first several years of operation. Based on this projected demand, the investor can determine its anticipated level of business volume, which is needed in order to design the processing facilities. If the projected business volume is not large enough to justify a processing facility, then the project is not feasible. Technological and organizational requirements: This area concerns the internal set-up of the cooperative. Questions to be answered in this area include: Plant and equipment issues: What type of equipment and technology will the business need to produce its product? What are the costs involved? This includes both the initial purchase and installation costs of the equipment as well as the operational costs of running the equipment. Who are the potential suppliers of this equipment? Where are they located? What sort of service and warranties do they provide? How long will it take to acquire the equipment and begin operations? Based on its projected business volume, how much raw product will be required by the investor? What are the quality specifications? Will the investor have a sufficient membership base that can provide the raw materials? Page 8 What are the possible locations for the plant’s facility? What size of facility is needed? What are the costs of the building? Does the proposed location have adequate access to infrastructures and services such as major highways, railways, and utilities? Will the plant build its own facility, or purchase an existing location? Where will the facility be located relative to the plant’s customers? Who will be responsible for the transportation of goods between the facility and the market? What are the transportation costs involved? Managerial and organizational issues: Is the plant organizational structure the right one for this business? How important are delivery contracts and a fixed source of supply to the success of the business? What qualifications are needed to manage these operations? What are the key staff positions that need to be filled? What type of experience should management have? Are there potential candidates available to fill such positions? What will be the cost factor involved in finding and retaining acceptable candidates? Financial overview: Based on the estimates that have been gathered from the preceding sections of the study, the investor needs to determine its overall financial situation. Sources and uses of financing should be listed. Questions such as the following need to be considered: What are the total start-up costs required in order to begin operations? For instance, what are the capital costs of the land, plant and equipment, and other start-up costs such as legal and accounting costs? What are the operating costs involved? These include the daily costs involved in running the business, such as wages, rent, utilities, and interest payments on outstanding debt. These will determine the cash flow requirements of the project. Based on the estimated demand, what are the plant’s revenue projections? How will the plant determine its pricing arrangements? What are the possible sources of financing for the project? Who are potential lenders? What will be their required terms and limitations of borrowing? Based on the estimated revenues and costs, what is the projected profit (loss) of the project? What is the break-even point? If the results of the feasibility study indicate that the proposed venture is economically viable, then the investor can begin to develop a business plan II.1.2 Expected accuracy range in FS stage Project cost estimate is a key component as it will put everything on the table and estimate the costs relating to the project. Depending on the stage of the project, which will define the detailed level of the project, the estimate accuracy will change. As the Page 9 level of project definition increases, the expected accuracy of estimate tends to improve. As guidelines, the Association for the Advancement of Cost Estimate (AACE) has developed the cost estimate classification system to provide a classification method as well as identify, cross-reference, benchmark and evaluate multiple characteristics related to the class of cost estimate. AACE guidelines have gained broad acceptance within the engineering and construction communities and within the process industries. Intent of the guidelines is to improve communication among all stakeholders involved with preparing, evaluating and using cost estimates. The various parties that use project cost estimates often misinterpret the quality and value of the information available to prepare the cost estimates, the various methods employed during the estimating process, the accuracy level expected from the estimates, and the level of risk associated with estimates. Classification methodology In order to categorize the cost estimates type, the AACE have stated several characteristics that can be used, such as degree of project definition, usage of estimate, estimating methodology, effort and time needed to prepare the estimate, etc. Out of those, the AACE International Recommended Practice No. 17R-97 “Cost Estimate Classification System” (AACE International Recommended Practices, 2007) has chosen the project definition as primary characteristic. Five cost estimate classes have been established. These class designations are labeled Class 1, 2, 3, 4 and 5. Class 5 estimate is based on the lowest level of definition, and a Class 1 estimate is closest to full project definitions and maturity. The table below shows the generic cost estimate classification matrix. Estimate Class Primary characteristic Secondary characteristic Level of Project Definition (expressed at % of complete definition) End Usage (typical purpose of estimate) Methodology (typical estimating method) Expected Accuracy Range (typical +/range relative to best index of 1 (a) Class 5 0% to 2% Screening or Stochastic or 4 to 20 Feasibility judgment 1 Class 4 1% to 15% Concept Primarily Study or Stochastic Feasibility 2 to 4 3 to 12 Preparation Effort (typical degree of effort relative to least cost index of 1 (b) Page 10 Class 3 10% to 40% Budget, Mixed, but 2 to 6 Authorization Primarily or Control Stochastic 3 to 10 Class 2 30% to 70% Control or Primarily Bid/Tender Deteministic 1 to 3 5 to 20 Class 1 50% to 100% Check Deteministic Estimate or Bid/Tender 1 10 to 100 Note: (a) If the range index value of “1” represents +10%/-5%, then an index value of “10” represents +100%/-50% (b)If the cost index value of “1” reprsents 0.05% of project cost, then an index value of 100 represents 0.5% Figure II.1 AACE’s generic cost estimate classification matrix As seen in the above table, the feasibility study can be categorized as Class 4 or Class 5 level of estimate. Class 5 level means the project definition is expressed as 0-2% of complete definition. Class 4 level means the project definition is expressed as 1-15% of complete definition. The budget estimate for this class 4 estimate is typically from -15% to +30%. II.2 Market research As mentioned above, the primary area that the feasibility study needs to address is potential market opportunities. Therefore, market research is a necessary step in order to find out the answers to the questions stated in the market issues. According to Churchill and Jacobucci (2004) in “Marketing Research: Methodological Foundations”, through market research, the product, the pricing, the distribution as well as market trends, diversification opportunities, etc. can be explored. The stages of market research process normally go through the following steps: - Formulate the problem; - Determine the research design; - Design the data-collection method and forms; - Design the sample and collect data; - Analyze and interpret data; - Prepare the research report. Page 11 II.3 Price forecast Forecast is an extrapolation of historical data and historical relationships based on expectations of the future and how those relationships may change or stay the same in the future. According to CMAI (2010), Forecast Methodology, there are some popular price forecast methodologies in oil and gas industry: “Price = Cost+ Margin”, Simple average methodology, Moving average methodology and Regression correlation methodology, etc. II.3.1 “Price = Cost + Margin” methodology The price forecast methodology considers numerous factors when projecting cost & margins: energy costs, economic growth, production costs, alternative values as a proxy for cost, competitive pressures, trade flows, availability of supply, capacity and demand. The price forecast methodology provides a cycle forecast for one complete future cycle, generally 5 – 7 years, and then reverts to a trend forecast for the long term. Source: CMAI, 2010 Figure II.2 Price forecast model Production cost is the key element in “Cost + Margin = Price” Methodology, and strong impact on product price forecast. Production costs include variable cost and fixed cost. Where: Variable Cost = Raw material cost – Margins by product + All utilities cost Fixed Cost = Labor cost + maintenance + insurance & taxes + overhead In the models, production costs do not include depreciation, corporate overhead, interest payments, taxes or a return on investment. Only variable (raw material, utilities, and by-product credits) and direct fixed costs are included the production cost. Page 12 Factors impacting cash margins are market momentum and psychology, supply/demand fundamentals & effect of operating rates, return on investment and other factors such as inventory level, threat of substitutes etc. Prices will be done in different periods, including short term, mid-term and long term. In general, forecasts are always changing and becoming less accurate for longer forecast periods. Thus, making reliable predictions requires the predictor’s correct prediction methodology, as well as experience and good market identification. II.3.1.1 Short Term Forecast Methodology Present through 3 – 6 Months Price forecasts are based on individual experienced consultants examining significant impacts on price as follows:       Energy price fluctuations; Sudden increase in demand; Inventories; Operating problems; Damaged goods during transportations; Operating new capacity. 3 – 6 Months through 24 Months Consultants are considering all the above and how they impact margins. Models build price forecasts via a “cost plus margin” methodology as a “starting point”; then adjustments are made on cost and margins for the below key considerations:  Inventories;  Seasonality;  Price movements;  Feedstock availability;  Operating schedules;  Trading positions/flows;  New plant startup timing;  Quarterly/Monthly supply/demand;  Unexpected outages;  Discussions with industry market makers;  Other short term methods for forecasting. II.3.1.2 Mid – Term Price Forecast Consultants utilize historical understanding of margin cycles and supply/demand balances in conjunction with analysis of any paradigm breaking market occurrences such as migration of significant capacity to low cost regions of the world or breakthrough low cost production technology. Page 13 This should be strongly supported by annual supply/demand balance new projects timing and demand patterns that are relatively well – known for the next 5 – 7 years for below key considerations:  Cycle position in capital build cycle;  Announced capacity changes;  Some of the same factors as the short – term;  Macro economic impact (jobs, recession, etc);  Relationships;  Pricing sustainability with respect to whole value chain. II.3.1.3 Long Term Price Forecast Long term prices are estimated to provide adequate return on investment (ROI) invested for construction of new or maintenance of existing marginal production. Cycles are no longer forecasted (although can be estimated if needed based on historical patterns). Key Considerations:  What is the price setting increment? Location? Technology? Size?  Where are expected capacity additions?  What will be future trade flow patterns to justify regional differentials?  What effect do low cost regions have on future production?  What is derivative outlook?  Are there regulatory considerations?  What are the relationships to competing products? II.3.2 Long term average methodology This method levels off the random, mass calculation and needs a huge archive of data that is suitable for models of which data is not significantly influenced. This means factors and business environment impact on predicted objects are relatively stable. By carrying out such an approach, forecast price in the year t is calculated by averaging historical prices. Likewise, forecast price for the next year is the average of historical prices and previous predicted figure. Therefore, forecast price of a certain product is generalized as follows: = Where: Ft + 1 : product forecast price in the year t + 1; Dt : product price in the year t; n: the number of years used to calculate the average value. Page 14 II.3.3 Moving average methodology This is also the forecast methodology in accordance with the model that does not have large fluctuations of product prices data. Given a series of numbers and a fixed subset size, the first element of the moving average is obtained by taking the average of the initial fixed subset of the number series. Then the subset is modified by "shifting forward", that excludes the first number of the series and includes the next number following the original subset in the series. Formula: Note: “n” is usually rather small: 3, 4, 5… II.3.4 Regression correlation methodology Regression correlation methodology is applied to: estimate the average value of product prices when given the value of related factors, verify hypotheses about the nature of the dependence between product prices and factors, forecast the average value of product prices when given the values of related factors and forecast the marginal impact or elasticity of related factors through regression coefficients. II.3.4.1 Linear regression model A linear regression model attempts to explain the relationship between product prices and one or more factors impacting on prices such as raw material costs, product supply and demand using a straight line. When considering the past relationship between product prices and factors, if the correlation coefficient R2 is approximate one, the regression line equation will fit perfectly, whereas R2 is closer to zero, there’s no relationship between product prices and related factors. The statistical relation between X and Y may be expressed as follows: Yi = 1 + 2X2i + 3X3i + ... + kXki + Ui Where: Yi: product prices; Ui : random error;     k regression coefficients ; Xki: related factors impact on prices. According to the estimates, regression coefficients are calculated using least squares methodology. In this model, we accept the hypothesis that the impacts of factors on product prices are independent, do not interact and have a constant variance. In fact, when studying the specific cases, we conducted analysis of the variance and correlation to find the dependent relationship and check whether the self-correlated, multi-collinearity or variance changes (usually using the Durbin Watson verification). Page 15 A linear regression model is called a multiple linear regression model based on the relationship between product prices Y and many related factors X. The regression model is called a simple linear regression model if there is just one independent variable, X, in the model. II.3.4.2 Nonlinear regression model Nonlinear regression model is a form of regression analysis in which observational data are modeled by a function which is a nonlinear combination of the model parameters and depends on one or more independent variables. A few examples are Cobb Douglas production function, parabolic regression, and hyperbolic regression. Regression coefficients are calculated using nonlinear least squares methodology. Because the estimation of coefficients is very complicated, the people should convert nonlinear equations into linear equations. With the form of Hyperbolic equation: y = a/x: Place 1/x = z to convert the equation into a single linear regression model: y = az and conduct simple linear regression. With the form of Parabolic equation: y = ax2 + bx + c: Place z1 = x2, z2 = x to convert the equation into a multiple linear regression model y = az1 + bz2 + c. With the form of Cobb Douglas production function: Y = AX1b1... Xib2...Xnbn: Use the logarithm to convert into a linear regression model: lnY = lnA + b1lnX1 + … + bnlnXn. Then use a multiple linear regression model’s formulas to estimate regression coefficients. II.4 Cash flow and financial indicators calculation II.4.1 Cash flow calculation The income statement of these projects will be calculated as following form: 1 Revenue from sales goods 2 Production cost 2.1 Variable cost 2.2 Fixed cost 3 EBITDA = (1) – (2) 4 Depreciation cost 5 EBT = (3) – (4) 6 Income tax Page 16 Net income = (5) – (6) 7 The cash-flow of the project will be calculated: 1 In-flow cash 1.1 Revenue from sales goods 2 Out-flow cash 2.1 Investment cost 2.2 Production cost 2.3 Income tax 3 Net working capital 4 Net cash-flow II.5 WACC calculation II.5.1 WACC formula One of the important elements to calculate NPV is WACC of the project. WACC will be calculated by following formula: WACC = We x Re + Wd x Rd x (1-t) In which: - We: percentage of equity investment - Re: cost of equity - Wd: percentage of debt - Rd: cost of debt (interest rate) - T: income tax rate II.5.2 Cost of equity (re) The cost of equity will be calculated by Capital Asset Pricing Model (CAPM) model. CAPM is the most commonly accepted method for calculating cost of equity which is part of discount rate. The CAPM is developed for measuring the relationship between return from a particular share and that of market return (Brealy et al., 2007): re = rf + β(rm- rf) where, re: expected return on equity rf: risk-free rate Page 17 rm: expected return on market portfolio β: beta of asset To use the capital asset pricing model, three inputs are needed and estimated as follows (Damodaran, 2002): The riskless asset is defined to be an asset for which the investor knows the expected return with certainty for the time horizon of the analysis. The risk premium is the premium demanded by investors for investing in the market portfolio instead of investing in a riskless asset. The beta, defined as the covariance of the asset divided by the variance of the market portfolio, measures the risk added on by an investment to the market portfolio. The beta can be calculate by either direct or indirect method. The cost of equity obtained by CAPM is often destined for estimating the weighted average cost of capital (WACC) which in turn used as discount rate in discounted cash flow model. In case of investing outside US, the cost of equity can be calculated as follows: Cost of equity = Risk- free rate + Beta x (U.S. risk premium) + Country Equity Risk Premium The Country Equity Risk Premium can be calculated as follows: Country Equity Risk Premiumcountry X = Risk PremiumUS x Relative Standard Deviationcountry X. Where the default risk of US is the base value and the country risk is added according to the above equations. II.5.3 Cost of debt (rd) The cost of debt measures the current cost to the firm of borrowing funds to finance projects. In general terms, it is determined by the following variables: The riskless rate: as the riskless rate increases, the cost of debt for firm will also increases. The default risk (and associated default spread) of the company. As the default risk of a firm increases, the cost of borrowing money will also increase The tax advantage associated with debt. II.6 Calculation of financial indicators After creating cash-flow, the thesis will compute the financial indicators to evaluate the feasibility of the projects. The common indicators are NPV (Net present value), IRR (Internal Rate of Return), PP (Payback Period), PI (Profitability Index) … II.6.1.1 NPV The Net Present Value (NPV) of a time series of cash flows, both incoming and outgoing, is defined as the sum of the present values (PVs) of the individual cash flows of the same entity. Page 18 NPV is a central tool in discounted cash flow (DCF) analysis, and is a standard method for using the time value of money to appraise long-term projects. Used for capital budgeting, and widely throughout economics, finance, and accounting, it measures the excess or shortfall of cash flows, in present value terms, once financing charges are met. NPV is an indicator of how much value an investment or project adds to the firm. With a particular project, if is a positive value, the project is in the status of positive cash inflow in the time of t. If is a negative value, the project is in the status of discounted cash outflow in the time of t. Appropriately risked projects with a positive NPV could be accepted. This does not necessarily mean that they should be undertaken since NPV at the cost of capital may not account for opportunity cost, i.e. comparison with other available investments. In financial theory, if there is a choice between two mutually exclusive alternatives, the one yielding the higher NPV should be selected. If... It means... Then... NPV > 0 The investment would add The project may be accepted value to the firm NPV < 0 The investment would The project should be rejected subtract value from the firm NPV = 0 We should be indifferent in the decision whether to accept or reject the project. The investment would This project adds no monetary value. neither gain nor lose value Decision should be based on other criteria, for the firm e.g. strategic positioning or other factors not explicitly included in the calculation. II.6.1.2 IRR The internal rate of return (IRR) is a rate of return used in capital budgeting to measure and compare the profitability of investments. It is also called the discounted cash flow rate of return (DCFROR) or the rate of return (ROR). In the context of savings and loans, the IRR is also called the effective interest rate. The term internal refers to the fact that its calculation does not incorporate environmental factors (e.g., the interest rate or inflation) The internal rate of return on an investment or project is the "annualized effective compounded return rate" or "rate of return" that makes the net present value (NPV) from a particular investment equal to zero. Internal rates of return are commonly used to evaluate the desirability of investments or projects. The higher a project's internal rate of return, the more desirable it is to undertake the project. Assuming all projects require the same amount of up-front Page 19 investment, the project with the highest IRR would be considered the best and undertaken first. II.6.1.3 PP Payback period in capital budgeting refers to the period of time required for the return on an investment to "repay" the sum of the original investment. Payback period as a tool of analysis is often used because it is easy to apply and easy to understand for most individuals, regardless of academic training or field of endeavor. When used carefully or to compare similar investments, it can be quite useful. As a stand-alone tool to compare an investment to "doing nothing," payback period has no explicit criteria for decision-making (except, perhaps, that the payback period should be less than infinity). The payback period is considered a method of analysis with serious limitations and qualifications for its use, because it does not account for the time value of money, risk, financing or other important considerations, such as the opportunity cost. Whilst the time value of money can be rectified by applying a weighted average cost of capital discount, it is generally agreed that this tool for investment decisions should not be used in isolation. II.6.1.4 PI Profitability index (PI), also known as profit investment ratio (PIR) and value investment ratio (VIR), is the ratio of payoff to investment of a proposed project. It is a useful tool for ranking projects because it allows you to quantify the amount of value created per unit of investment. The ratio is calculated as PV of future cash flows divide initial investment. Rules for selection or rejection of a project: - If PI > 1 then accept the project - If PI < 1 then reject the project Besides, the others indicators such as MIRR (modified Internal Rate of return), DPP (discounted Payback period) can be considered to bring more information for the investment decision. Page 20 CHAPTER III. METHODOLOGY As presented in Section I.6, Scope and Limitation, this financial study focuses on market analysis, total investment cost and economic efficiency. The economic efficiency will be evaluated based on the financial indicators. Therefore, the methodology used in this study will focus on these three fields: - Market research methodology; - Investment Cost estimate methodology; - Financial indicators calculation methodology. III.1 Market research methodology The market research methodology will follow the steps as suggested in Section II.2. III.1.1 Formulate the problem - Research Objectives The purpose of this market research is to find the domestic demand and supply balance. In order to do that, the following matters have to be analyzed: For product - Ammonia: - The suppliers and consumers: who they are, how much they produce or consume, what source do they get Ammonia from, how do they use to transport Ammonia? - Future expectations of Ammonia demand and supply: do they plan to expand, will their demand changes? - What is the required specification of Ammonia? For feedstock – Natural gas: - What are the main resources of natural gas, the current supply and demand? - What is the gas price applied for this project? III.1.2 Research design and Data collection form In order to find the answers to these questions, this study will apply two types of research: primary research and secondary research. III.1.2.1 Primary Research The goal of primary research is to gather data from analyzing current import and sales of ammonia product, and the possibility of gas supplying from gas production company. Collecting primary research can include: - Questionnaires or in-depth interviews: ammonia-related companies; - Interviews: gas production companies. III.1.2.1.1 Ammonia consumers and suppliers Due to the specific information needed for this study, which requires both numerical and textural data, the mixed method (Duffy, 2008 and Williams, 2007) was chosen for market research of Ammonia consumers. The advantage of this method is that it draws Page 21 from strengths and minimizes the weakness of quantitative and qualitative research approaches. This method of research will help investigate the current usage of Ammonia, predict the trend, explore and understand the Ammonia market more clearly. Research on Ammonia consumer is collected using the following steps: - Select respondents; - Send questionnaire, set up phone interviews or face-to-face interviews; - Analyze collected data. Step 1: Respondent selection Table III.1: Respondent selection STT Criteria Respondent Characteristics 1. Gender Male and Female 2. Age 18-55 3. Occupation Working in fertilizer and chemicals industry 4. Role in decision making Procurement officer, production manager or higher authorities The purposes of the questions are to get as much information as possible with the minimum work for the question receivers. The questions are designed based on the expected outcomes that we want from this questionnaire or interviews, details are as follows: - End use of Ammonia: the questionnaire will list possible application of Ammonia so that the respondent can choose from the list; - Annual amount of Ammonia consumption: the question is designed so that the receiver can just write a number to answer; - Expected demand in the future and the specific time of change: the question is designed so that the receiver can just write a number to answer; - The current supplying source of Ammonia: a list of possible supplying source is provided for the receiver to choose from; - The method of Ammonia transportation: a list of possible transportation method is provided for the receiver to choose from; - Specification of currently used Ammonia; - Expectation from domestic companies: this is additional information in order to support data analysis. Page 22 Therefore, the questionnaire is filled with checked boxes for the receivers to simply check and the questions are designed so that the receivers can answer shortly with a number or a few words. The questionnaire therefore will look like this: -------------------------------------------------------------------------------------------------------AMMONIA MARKET QUESTIONNAIRE 1. Your company uses Ammonia for the following purposes (click all that applies): Fertilizer production If checked, please specify fertilizer type: Urea, annual demand is…………………………………………… DAP, annual demand is……………………………. ……………. SA, annual demand is…………………………………………….. Others, which are…………………………………......................... Plastics, annual demand is……………………………………………………. Fiber, annual demand is………………………………………………………. Explosives, annual demand is………………………………………………… If checked, please specify:…………………………………………………… Chemicals, annual demand is………………………………………………… Foods, annual demand is……………………………………………………... If checked, please specify food type: MSG, annual demand is…………………………………………… Others, which are………………………………….......................... 2. Annual ammonia consumption demand (thousand tons):………………………... 3. Expected demand in the future (thousand tons/year):……………………………. From year:……………………………………………………………………. 4. The current source of Ammonia for your company is (click all that applies): Self-production, if checked, please specify: Capacity (thousand tons/year) = ……..... Extra ammonia if any (thousand tons/year) = ………………. What do you do with the extra ammonia production?..................................... ................................................................................................................................ Foreign suppliers Page 23 Domestic suppliers Others, please specify:………………………………………………………… 5. The current method of supplying Ammonia for your company: By truck By vessel. If Ammonia is transported by vessel, please choose the method of ammonia transportation from port to your company’s storage: By truck By pipeline Others, please specify:……………………………………………... 6. Specifications of the Ammonia product your company is currently using? ........................................................................................................................................ ........................................................................................................................................ ........................................................................................................................................ ........................................................................................................................................ 7. What do you expect from domestic ammonia production companies? ........................................................................................................................................ ........................................................................................................................................ ........................................................................................................................................ ........................................................................................................................................ -------------------------------------------------------------------------------------------------------III.1.2.1.2 Feedstock suppliers Domestically, PVGas, under the guidance of Vietnam Oil and Gas Group, is the only natural gas suppliers. Therefore, in order to find out the feedstock supply and demand, an interview is set up with PVGas representative to collect information regarding the natural gas price, the plan for current and future gas resource. The interview will cover the following information: - Current gas resource; - Future gas resource; - Gas price. Page 24 Additional information regarding the planning and strategy of natural gas resources for the future will be based on documents collected from Vietnam Oil and Gas Group. III.1.2.2 Secondary Research The goal of secondary research is to analyze data that has already been published. With secondary data, you can identify market size, competitors, establish benchmarks, and identify target segments and feedstock supply possibility. The source of secondary research is published information from custom office, website, magazines, etc. III.1.3 Determine the sample size Different from other types of products, Ammonia is a very narrow field and industrialtype of chemicals.. As mentioned in the previous part, one of the criteria used to select respondent is working in fertilizer and chemicals industry and another criteria is that the respondent has to be the person in charge of procurement or production of that company. Therefore, the sample size is limited. Based on that, the sample size is limited to the following companies: - Vietnam Oil and Gas Group; - Petrovietnam Fertilizer Company (PVFCCo); - Ca Mau Fertilizer Plant; - F.A Company; - Vedan Limited JSC; - Ajinomoto Vietnam Co., Ltd; - Dinh Vu DAP. The results from this market research is reported and analyzed in Section IV.1. III.2 Investment cost estimation methodology According to Circular No. 04/2010/TT-BXD of Ministry of Construction, the total investment cost includes: - Construction cost; - Equipment cost; - Owner’s project management cost; - Project consultancy cost; - Miscellaneous; - Provision for contingency; As mentioned in section II.1.2, expected accuracy range in FS stage, the total investment cost will be estimation has the accuracy range from -15% to +30% and will be estimated as below: Page 25 - The equipment cost is provided by licensors including process equipment and offsite, utilities insides battery limit of the plant; - The construction cost includes direct and indirect cost. The direct cost is express as percentage of equipment cost. The percentage will be referred from Conceptual Cost Estimating Manual, 1996, Gulf Publishing and adjusted using Vietnamese labor cost. The indirect cost is calculated according to the norms in the Circular dated 04/2010/TT-BXD of Ministry of Construction; - Owner’s project management cost is calculated based on the norms in Decision No. 957/ QĐ-BXD of Ministry of Construction. - Project consultancy cost includes site survey cost, FS cost, EPC bidding, cost for verifying the FS … will be is calculated based on the norms in Decision No. 957/ QĐ-BXD of Ministry of Construction, Circular No. 109/2000/TT-BTC of Ministry of Finance; - Miscellaneous includes land leasing cost in construction time, construction insurance, audit and cost are mainly calculated based on the norms in Decision No. 957/ QĐ-BXD of Ministry of Construction, Circular No. 19/2011/TT-BTC of Ministry of Finance and referred from similar projects such as Phu My fertilizer, Ca Mau Fertilizer… - Provision for Contingency includes contingency and escalation cost. Based on experience of PVFCCo and suitable with the regulations of Viet Nam, the contingency rate will be 10%. The escalation will be classified to three groups: equipment, construction and others with the different escalation rate. III.3 Product price forecast According to the Long term average and Moving average methodology, these methods level off the random, mass calculation and need a huge archive of data that is suitable for models of which data is not significantly influenced. From the collected product price from Vietnam Customs during the period 1995-2011, the data of Vietnamese Ammonia price is fairly small. Besides that, the product price is impacted mostly by the WTI crude oil factor. It has a close relationship with WTI crude oil from IEA (International Energy Association) at the same period. Therefore, the product price will be forecasted based on the forecast of WTI crude oil. This thesis uses the “Linear regression model” (Section II.3.4.1) to forecast the product price. III.4 Financial indicators calculation methodology Three main financial indicators used to evaluate the feasibility of the project are NPV, IRR and pay-back period (PP). In order to calculated those financial indicators, the project cash-flow will be built includes in-flow and out-flow. - The in-flow includes sales return of the project and calculated multiplication of production quantity and product price. Besides, the in-flow includes the Working capital recovery at the end of project; Page 26 - The out-flow includes investment cost, production cost, interest, income tax and increasing of Working capital each year. Page 27 CHAPTER IV. FINDING AND SOLUTIONS IV.1 Feedstock and Product The simple general process of Ammonia production is as followed: Ammonia plant Natural Gas Feedstock Liquid Ammonia (NH3) mainly used for: -Urea production -DAP production Utilities (power, water,…) -SA production -MSG production -AN production IV.1.1 Ammonia domestic market IV.1.1.1 Demand Based on the results from the interviews with PVFCCo (Phu My Fertilizer Plant) and Ca Mau Fertilizer Plant, the Ammonia that they need is about 450 KTPA each. However, Ammonia is self-produced within the plant and used for urea production for these two plants. The demand for external Ammonia is therefore none at present and they have no plan of increasing urea production in the upcoming years. Therefore, the demand is unchanged for the next years. Domestic Ammonia demand primarily concentrates on two regions: the South and North of Vietnam with big customers such as the Ammonium Nitrate plant, Monosodium glutamate manufacturers (Vedan, Ajinomoto), Di-Ammonium Phosphate (DAP). The customers do not self-produce Ammonia. The demand, the expected delivery method and also demand in the upcoming years as well as the expected year of new demand are presented in the following table: Table IV.1 Domestic potential customer Company Southern market Current Ammonia demand (KTPA) Future Ammonia demand (KTPA) Starting time of future demand Expected delivery method 170 Page 28 Company Current Ammonia demand (KTPA) Southern market Future Ammonia demand (KTPA) Starting time of future demand Expected delivery method 170 1 Ammonium Nitrate Plant1 0 90 2016 Pipeline 2 F.A Company 7 7 2012 Truck 3 Vedan Limited JSC 46 47 2014 Truck 4 Ajinomoto Vietnam Co., Ltd 24 26 2016 Truck 2014 Fully refrigerated tanker 2015 Fully refrigerated tanker 2015 Fully refrigerated tanker Northern market 1 2 3 Ammonium Nitrate Plant Dinh Vu DAP Plant 280 0 0 90 95 Lao Cai DAP Plant 0 95 Total domestic demand 77 450 IV.1.1.1.1 Southern market  Vedan (Vietnam) Enterprise Corp.,Ltd (Vedan) is located in DongNai Province, 15 kilometers from the Ammonia Plant. Currently, the plant is operating at 83% of nameplate capacity which consumes nearly 46 thousand metric tons of Ammonia in 2011 and the demand is projected to increase to nearly 47 thousand metric tons in 2014 and 55 thousand metric tons of Ammonia in 2040; 1 According to Agreement between PetroVietnam Oil and Gas Group (PVN) and General Army of Economic and Technology Corporation (GAET) - belongs to the Ministry of Defence which was sign on July 20th about investment of Ammonia and Ammonium Nitrate complex from natural gas. Page 29  Ajinomoto’s Mono-sodium glutamate manufacturing plant is located in Bien Hoa I industrial zone, Dongnai province, 50 kilometers from the Phu My Ammonia Plant. Likewise Vedan, the plant is currently operating at 80% of design capacity which consumes nearly 24 thousand metric tons of Ammonia in 2011 and its demand is projected to increase to 26 thousand metric tons in 2014 and 30 thousand metric tons in 2040;  A new Ammonium Nitrate plant is expected to be constructed and will operate at the same time with the Ammonia plant in 2016, with proposed capacity of 200 thousand metric tons of Ammonium Nitrate per year, equally consumption of 90 thousand metric tons Ammonia per year.;  FA Joint Stock Company specializes in trading, transporting Ammonia and liquefied petroleum gas (LPG). Its Ammonia storage is located in Long Thanh district, Dongnai province, 15 kilometers from the Phu My Ammonia Plant. In 2010, this company bought 7 KT of Ammonia from Phu My Fertilizer Plant in order to bottle and distribute to Ammonia consumers throughout the country. PVFCCo could sign long-term Ammonia supplying contract with F.A Company. The demand of this company is expected to be the same up to 2016. IV.1.1.1.2 Northern market  When Dinh Vu DAP plant operates at 100% capacity, Ammonia demand will be 95 KTPA. At present, Ammonia for the Dinh Vu DAP Plant is imported from Indonesia and Egypt through Hai Phong port. Compared with imported Ammonia from Indonesia, buying Ammonia from domestic suppliers will be more favourable because of shorter distance, lower risk of disrupted supply and no import tax. The plant will operate at 100% capacity in 2015;  Likewise Dinh Vu DAP plant, Lao Cai DAP plant will operate at 100% capacity in 2015, Ammonia demand will be 95 KTPA;  Located in Thai Binh province and invested by Vinacomin, Ammonium Nitrate Plant with proposed nameplate capacity of 200 KTPA is expected to come stream in March, 2014 and consume around 90 KT of Ammonia per annum. Based on the information collected through questionnaires and interviews as described, the domestic demand from 2012 to 2016 is predicted as in the following figure: Page 30 Figure IV.1. Domestic Ammonia Demand from 2012-2016 IV.1.1.2 Supply IV.1.1.2.1 Domestic supply As mentioned in Section I.3.2.2, domestic supply for Ammonia, therefore, only meets other fields demand (excluding Urea) in the case that Urea facility is suspended but Ammonia unit does still operates. The Ammonia surplus was relatively small, satisfied nearly 28 % of total demand in 2010, and then fell down to 6 % in 2011 since Phu My Fertilizer Plant has invested Carbon dioxide recovery system and revamped Urea nameplate capacity up to 800 KTPA. In the future, other nitrogen fertilizer plants about to come on stream such as Ca Mau, Cong Thanh, or Ninh Binh are not designed to have Ammonia surplus to supply for market. Thus, domestic Ammonia supply is expected not to meet demand for other areas excluding Urea. IV.1.1.2.2 Import In 2010, domestic Ammonia demand for other fields exclusive Urea is supplied by import, mainly from Indonesia (53 %), Bangladesh (19 %), Malaysia (18 %) and Egypt (8 %). Most of Ammonia consumers (besides Urea production) locate on Southern market over the period 2005 – 2010. Northern market began to import Ammonia since Dinh Vu DAP manufacturing plant started up in 2009. The amount of imported Ammonia into the Northern market was around 31 KT in 2010, making up 37 % of total Ammonia imports. Page 31 Source: Custom Data, 2010 Figure IV.2 Ammonia import classified by country in 2010 Source: Custom Data, 2010 Figure IV.3 Ammonia import classified by region in the period 2005 – 2010 Page 32 IV.1.1.3 Supply/Demand Balance The amount of Ammonia deficit was about 83 KT in 2010, and expected to increase to approximately 360 KT in 2015 and 450 KT in 2016. With the population growth as well as the orientation of exporting agricultural products, projects for fertilizers production are expected to continue establishing afterwards. The demand of Ammonia therefore will keep increasing in the future. IV.1.2 Forecast product price Source: EIA, PVPro, 2012 Figure IV.4 Ammonia and WTI crude oil price over the period 1995 – 2011 Ammonia pricing is forecast based on the correlation between Ammonia price and WTI crude oil price over the period 1995 – 2011. Page 33 Figure IV.5 Correlation between Ammonia price and WTI crude oil price in the period 1995 – 2011 The results show a close relation between the Ammonia price and WTI crude oil nominal price with R2 = 0.9478. Therefore, WTI2 crude oil pricing forecast over the period 2012 – 2025 is used as a base for Ammonia pricing forecast over the period 2012 – 2025. Page 34 Source: EIA, 2012 Figure IV.6 WTI crude oil price forecast (real 2010 dollars per barrel) EIA has suggested three scenarios of WTI crude oil prices over the period 2011 – 2035 as follows: - Reference Oil Price Scenario: crude oil prices fluctuate from 95 USD/barrel in 2012 and then increase to 145 USD/barrel in 2035; High Oil Price Scenario: crude oil prices fluctuate from 139 USD/barrel in 2012 and then increase to 201 USD/barrel in 2035; Low Oil Price Scenario: crude oil prices decrease down to 58 USD/barrel in 2014 and continue to increase to 62 USD/barrel in 2035. The WTI crude oil nominal price can be forecast by multiplying WTI crude oil real price forecast and US Implicit Price Deflator during the period 1995-2025. Page 35 History Projections Source: EIA, 2012 Figure IV.7 WTI crude oil nominal price forecast to 2025 Therefore, Ammonia pricing over the period 2012 – 2025 is forecast based on the correlation WTI crude oil nominal price forecast according to EIA’s Oil Price Scenarios in the same period. Figure IV.8 Ammonia price forecast over the period 2012 – 2025 CMAI (Chemical Market Associates) - a global information company with worldclass experts in the pivotal areas shaping today’s business landscape: energy, economics, geopolitical risk, sustainability and supply chain management. CMAI Page 36 employs more than 5,500 people in more than 30 countries around the world. CMAI’s researchers and consultants gather and analyze critical data from around the globe on chemical markets, processes, companies and developments. Reference to CMAI’s Ammonia price forecast methodology - “Price = Cost+ Margin”, over the long term, Ammonia price is ultimately a function of production costs plus some level of profitability for the high cost producer. Three elements are therefore necessary to generate a price forecast: - The first is to calculate a production cost forecast and to generate a forecast of production costs one must generate a forecast of feedstock cost. The forecasting model starts from production cost of Ammonia plant in New Orleans, which represent the high Ammonia production cost in U.S; - The second is a margin/profitability forecast, supply/demand balances are used to generate the forecast of margins and profitability. High operating rates lead to good margins and low operating rates lead to poor margins; - The third is to insure price linkages between regions, a forecast of trade patterns and freight cost. According to CMAI’s forecast methodology, Ammonia price over the period 2012 – 2025 is forecast as follows: Source: CMAI, 2012 Figure IV.9 Ammonia price forecast over the period 2012 – 2025 In order to check the accuracy of the price forecast methodology, “Linear regression model,” the price forecast is cross-checked with that of CMAI. The results show that Reference Ammonia price according to the above methodology has a similar upward trend as that is forecast by CMAI. The average difference in price between two trends is under 10% and fluctuating from 3% to 7%. Therefore, Ammonia price predicted according to the above methodology is reliable. Page 37 However, this Linear regression model is based on the relationship between product price Y and just one independent variable X because of the limited data. Thus, CMAI’s Ammonia price forecast is more reliable based on the relationship between product prices Y and many related factors X and a huge archive of data. Considering the small difference between the price forecast used in this study and CMAI’s data and the fact that CMAI is a global information company with an excellent reputation, even though the method used in this study is reliable, CMAI’s Ammonia price forecast is still selected to use in the calculation of economic effectiveness for more accurate results. IV.1.3 Feedstock For an ammonia plant under normal operating conditions, the following raw materials, fuels and other inputs are needed:  Natural gas;  Chemicals;  Raw water;  River cooling water;  Electricity. Technically, raw water, river cooling water and electricity are all available to supply for the new ammonia plant. Chemicals are available from suppliers. Out of these inputs, natural gas poses the biggest concern. Natural gas is the main feedstock for ammonia production as well as the main feedstock for other industries. IV.1.3.1 Natural gas supply Came into being and developing from 1995, the gas industry of Vietnam has held important role in the development of country. Currently, Vietnam Oil and Gas Group has deployed all stages in the chain of gas industry comprehensively such as: exploitation, transportation, processing, consumption and diversification of household consumption. Page 38 Source: PVGas, 2011 Figure IV.10 Southern pipeline systems development orientation In recent years, Southern region is the biggest gas market in Vietnam. The main gas resource of this region is associated gas and natural gas which is taken from three basins such as: Cuu Long, Nam Con Son and Malay – Tho Chu. After that, gas from Cuu Long and Nam Con Son basins have been transported to land via two pipeline systems as Bach Ho and Nam Con Son 1 pipelines and they have been supplied for Southeast customers. On the other hand, gas form Malay – Tho Chu basin is transported to Southwest customers by PM3 – Ca Mau pipeline system. Averagely, three pipeline networks have transported an approximately 10.5 bcm for each year. Gas supply for Southeast region will taken from fields in exploiting, developing and preparing development in Cuu Long basin and Nam Con Son basin between 2011 and 2021, that will be about 6.08 – 8.91 bcm/year including an amount of gas from Hai Thach – Moc Tinh fields which will be exploited from 2014 (Document No. 10352/DKVN-B.K dated 11/11/2011 was sent to Ministry of Industry and Trade by PVN). In particular, gas resources from Cuu Long basin includes following fields: Bach Ho, Rong/Doi Moi, Su Tu Den/Su Tu Vang, Su Tu Trang, Rang Dong, Phuong Dong, Te Giac Trang, Ca Ngu Vang, Hai SU Trang/Hai Su Den. Gas resources from Cuu Long Page 39 basin includes following fields: Lan Tay, Lan Do, Rong Doi/Rong Doi Tay, Chim Sao, Thien Ung, Hai Thach/Moc Tinh. Source: Vietnam Oil and Gas Group (Document No.10352/DKVN-B.K dated 11/11/2011) Figure IV.11 Gas supply from fields in exploiting, developing and preparing development of Cuu Long basin and Nam Con Son basin in the period 2011-2025 According to gas supply – demand balance and an exploiting plan for Cuu Long and Nam Con Son fields in exploiting, developing and preparing development, an amount of excess gas is at least 0.8 bcm/year and an average of 2.1 bcm in the period 2011 – 2021, that is capable of meeting the demand of Ammonia plant with capacity up to 800 thousand tons per year and other customers in Southeast region. Source: Vietnam Oil and Gas Group (Document No.10352/DKVN-B.K dated 11/11/2011) Figure IV.12 Gas supply – demand balance in Southeast region in the period 2011 – 2025 with the gas resource is from fields in exploiting, developing and preparing development of Cuu Long basin and Nam Con Son basin Page 40 In the period from 2022 to 2039, taking the potential gas resources of Cuu Long and Nam Con Son basins into consideration, so an amount of excess gas is at least 1.3 bcm/year that is enough to meet a demand of Ammonia plant with capacity up to 1.3 million tons per year. In the future, if necessary, Ammonia plant can also be processed gas from three basins: Malay – Tho Chu, Phu Khanh and Tu Chinh – Vung May when three connecting pipeline systems completed: East – West pipeline, Phu Khanh – Cuu Long and Tu Chinh – Vung May – Nam Con Son respectively. Therefore, it can be concluded that natural gas supply for Southeast region can provide adequately for the entire life of Ammonia plant project with capacity of 450 thousand tons per year. Page 41 Source: Vietnam Oil and Gas Group, PVGas, PVE, 2011 Figure IV.13 Supply – demand balance on potential supply in the period 2011-2039 Page 42 IV.1.3.2 Natural gas price Natural gas price used in economic and financial assessment is defined in Document No.1151/TTg-KTN dated July 7, 2010 of Prime Minister about the route of increasing natural gas price of Cuu Long basin and Nam Con Son basin for the not committed gas consumption. Accordingly, the natural gas price will be 5.61 USD/mmBTU in 2015, and increase 2% per year from 2016 onwards. In 2015, this price will be 30% higher than that applied for power plants which have committed contractsh (Phu My I, 2.1, 2.1 extended, 2.2, 3 and Phu My 4, Nhon Trach 1 and Nhon Trach 2). Figure IV.14 Natural gas price IV.1.4 Competitors Indonesia is the largest Ammonia exporter to Vietnam (more than 50% of imported Ammonia in 2010). Hence, Indonesia is considered as the main competitor of the Ammonia project in domestic market. This country has many large-scale Ammonia plants, a lot of experience in Ammonia production, transportation and distribution. In 2015, PT Pupuk in East Kalimantan is expected to revamp with 925 thousand metric tons Ammonia plant that is integrated to 1.2 million metric tons Urea plant. Table IV.2 Ammonia capacity of Indonesia Company PT Kaltim Parna Ind. (KPI) PT Kaltim Pasifik Ammonia (KPA) PT Petrokimia (PERSERO) PT Pupuk Kalimantan (KALTIM) PT Pupuk Kujang (PKC) PT Pupuk Sriwidjaja (PUSRI) Total Ammonia Capacity (thousand metric tons) 495 660 445 1,854 766 1,504 5,724 Page 43 Sources: CMAI, 2011 Indonesia has more advantage than other exporter in the region because Indonesia has low price of natural gas and also is a major exporter of natural gas. However, most of Ammonia Plants in Indonesia are long-standing with old technology which consumes large amount of natural gas feedstock compared to the latest one. South Korea is primarily imported Ammonia from Indonesia (38%), Australia (26%), Saudi Arabia (16%) and Ukraine (11%). In which, Ukraine has the highest natural gas price and the furthest distance from South Korea. Therefore, the main competitor for export market is Ukraine. 500 CFR South Korea, 2015: 514 USD/ton USD/ton 400 300 200 100 0 Total Cash Cost (USD/ton) KOS Import Duty Logistic Costs (USD/ton) Fixed Costs (USD/ton) Other Variable Costs (USD/ton) Net Raw Material Costs (USD/ton) Natural Gas Pricing (USD/mmBTU) Saudi Arabia 181 5 77 54 6 39 1,25 Malaysia 199 0 64 69 8 58 1,84 Australia 212 6 90 66 6 44 1,40 Indonesia 224 0 64 66 11 82 2,63 Ukraine 471 5 90 60 12 295 9,36 Sources: CMAI, 2011 Figure IV.15 Ammonia Delivered Cost to South Korea South Korea is importing around 130 thousand metric tons of Ammonia from Ukraine. Ammonia Plant has more advantages than Ukraine when penetrating into South Korea market such as shorter transport distance and no import tax, while Ammonia from Ukraine has suffered 1% import tax according to current regulations of South Korean Government. Ukraine has many large-scale Ammonia manufacturing plants, a lot of experience Ammonia production, transportation and distribution. However, some of Ammonia plants in Ukraine are quite old, and likely to be of obsolete technology, which consumes large amount of natural gas feedstock. Besides, Ukraine has many difficulties when exporting Ammonia to South Korea due to high natural gas price, which is expected more than 9 USD/mmBtu in 2015 as well as are far from Ammonia consuming countries in Asia. Table IV.3 Ammonia capacity for 2011 of Ukraine Company Ammonia capacity Page 44 (thousand metric tons) Azot Cherkassy 1,545 AzotRivnea 496 Dneproazot 900 Odessa Port 1,056 SeverodonetskAzot 970 Stirol 1,485 Total 6,452 Source: CMAI, 2011 IV.1.5 SWOT analysis IV.1.5.1 SWOT analysis PVFCCo has certain advantages and disadvantages when supplying Ammonia for domestic and regional market. The growing domestic Ammonia demand helps to extend Ammonia market and brings more chances for PVFCCo. However, PVFCCo would also confront severe competition from regional manufacturers who have much experience in Ammonia production and distribution. Regarding domestic market, PVFCCo will have competitive advantage of transport cost because of shorter distance to customers, of stable supply owing to well support from Phu My Fertilizer Plant, and of lower risks of transport to Ammonia consumers as well as of no import tax. Before July 2011, import tax rate of Ammonia is 3%. It means the importers must pay 3% more for imported Ammonia and it is a disadvantage of overseas suppliers. Nevertheless, since July 2011, the import tax rate has been decreased down to 0%.The strengths, weakness, opportunities and threats of PVFCCo are indicated below. Strengths Weaknesses  Have experienced labor force in operating and managing Urea and Ammonia Plant;  Apply advanced technology, so consuming less material than some old plants in Indonesia and Ukraine, using outdated technology;  Have strong relationship with potential customers in nearby areas;  Have stable supply for domestic  Have not had much experience in Ammonia distribution yet, especially for Northern market and export;  Have not had available strong relationship with big domestic customers and Ammonia traders in the region and the world;  Ammonia prices depend much on natural gas prices decided by Government as well as PetroVietnam Oil and Gas Page 45 customers even shutting down because of Group. the support from the Phu My Fertilizer Plant with total storage capacity of two plants up to 40,000 metric tons;  Receiving supports from PetroVietnam Oil and Gas Group;  Have strong ties with relevant authorities in its business. Opportunities  Domestic Ammonia demand is forecast to rapidly increase in the next few years because of the DAP, SA manufacturing projects planned by the goverment;  There is the huge shortage of Ammonia in Asia Pacific, especially South Korea;  Take advantage of shorter distance compared to Indonesia for the domestic market and compared to Ukraine for the potential market in the region;  No import tax for the domestic market as well as when exporting to South Korea under Korean government’s the current regulation;  Gas price is lower than Ukraine, increasing competitive opportunities for exporting to South Korea;  The Gas processing is encouraged by the government and PetroVietnam Oil and Gas Group. Threats  Severe competition with Ammonia exporting countries such as Indonesia, Malaysia, Australia, Ukraine;  Not high competitive ability due to high natural gas price;  Customers in the North of Vietnam are not affordable to import Ammonia with large tanker size in order to reduce freight costs. IV.2 Total investment cost IV.2.1 Construction cost The direct costs are expressed in terms of percentage of process equipment costs. This percentage is referred from document Conceptual Cost Estimating Manual, 1996, Gulf Publishing. Accordingly, the civil and structure works equal 19.9% of process equipment cost, including construction metarial cost 13.8% and labour cost 6.1%. Table IV.4 Direct costs (based on document Conceptual Cost Estimating Manual, 1996, Gulf Publishing and adjusted according to Vietnamese labour cost) Items Site infrastructure works Buildings % of Equipment 4.0% 5.0% Page 46 Civil and structure works Direct costs 19.9% 28.9% Indirect costs are calculated according to the norms in the Circular dated 04/2010/TTBXD of Ministry of Construction. Table IV.5 Indirect costs Description Construction management Estimated taxable income Temporary camp and construction administration Notation C TL % of Direct Costs 5.5% of direct cost 6% (direct cost + C) 1% (direct cost + C + TL) Temporary facilities include safety materials, first Aid emergency, site services settings (Toilets, water network, satellite, cables and wires network), power generation, temporary facilities, contractor’s office, storage and fabrication sheds, support facilities installation (temporary roads, waste disposal), security and protection facilities installations, and fuel for generation. IV.2.2 Equipment cost a. Process equipment cost Equipment cost is provided by licensors including process equipment and off-site, utilities insides battery limit of the plant as below: Table IV.6 Process equipment cost Description Ammonia process equipment Utilities and off-site Total Cost (USD) 103.528.999 19.745.241 123.274.240 b. Bulk Material Bulk material (Piping/ Electric/ Instrument/ Insulation/ Painting) are calculated based on the percentage of the process equipment. In Asian market, bulk material ratio is approximate 54% process equipment cost. c. Freight and taxes Based on SNC-Lavalin data, freight, international freight and domestic freight cost in Vietnam can be fixed at 10% of the equipment and bulk material cost; Page 47 Ammonia project is an encouraged investment project. Hence, import tax of equipment for Project is exempted according article 16, Law on Import tax and Export tax (No. 45/2005/QH11). d. Installation cost The equipment installation cost varies from 5% to 11% of the M.E, including supervision cost of vendors. Referred to Phu My Fertilizer and Ca Mau Fertilizer projects with the contribution of Vietnam and regional contractors, the ratio of 5% is applied for the Project e. Start-up Chemical and catalyst cost: According to quotation of licensor, the start-up chemical and catalyst cost is around 5% of process equipment cost. f. 2-year spare part According to quotation of licensor, the 2-year spare part cost is around 4% of process equipment cost. g. License fee: According to quotation of licensor, the license fee will cost 3% and minimum cost is 3 million USD. IV.2.3 Owner’s project management cost Owner project management costs is calculated based on the norms in Decision No. 957/ QĐ-BXD of Ministry of Construction. According to that decision, the norms will be calculated based on total of construction cost and equipment cost with the following formula: Nt  Nb  Nb  Na x(Gt  Gb) (Formula IV.1) Ga  Gb In which: - Gt: total of construction cost and equipment cost of this project; - Ga: total of construction cost and equipment cost of this project above of that in this project; - Gb: total of construction cost and equipment cost of this project below of that in this project; - Nt: the norm of this project; - Na: the norm of Ga; - Nb: the norm of Gb; IV.2.4 Project consultancy cost a. Site Survey: The site survey is referred to existing projects of PVFCCo and it is estimated 200,000 USD. Page 48 b. Feasibility Study: Owner project management costs is calculated based on the norms in Decision No. 957/ QĐ-BXD of Ministry of Construction with the formula as in IV.2.3 c. Environment Impact Assessment (EIA): This cost is based on the contract signed between PVFCCo and the partners, cost 60,000USD. d. EPC bidding: This cost includes bidding cost for constructers and procurements are calculated based on the norms in Decision No. 957/ QĐ-BXD of Ministry of Construction with the formula as in IV.2.3 e. Project management of EPC This cost includes: - Project management; - Engineering; - Procurement; - Construction management; - Installation and erection supervision. - And this cost is estimated by licensor around 15% of total equipment cost and construction cost - Other costs: - Design verification and estimated cost verification: based on the norms of the Decision No. 957/QĐ-BXD; - Materials quality testing, construction quality testing: is 300,000 USD; - Investment verification Fee, Detail Design verification fee and Estimated Cost verification fee are based on the norms of the Circular No. 109/2000/TT-BTC. IV.2.5 Miscellaneous - Land leasing cost during construction are 258,393 USD per 13.6 ha land area in 3 years; - Construction insurance: apply 1.5% of fixed investment cost for Project; - Preparation of owner’s operators is calculated as 0.68% of total fixed investment cost for Project; - Cost for audit, investigate and approve the settlement: based on Circular No. 19/2011/TT-BTC; - Contractor Income Tax is calculated based on Circular No. 134/2008/TT-BTC; - Cost for commissioning includes the natural gas cost for commissioning and sales return of Ammonia in commissioning stages as credit. Page 49 IV.2.6 Provision for Contingency a. Contingency of project Based on experience and suitable with the regulations of Viet Nam, rate of 10% is applied. b. Escalation The escalation rate is calculated as below table: Table IV.7 Escalation of total investment No. 1 2 3 Description Equipment, bulk materials Construction cost Other costs Inflation factor 2.0% 4.0% 2.5% Time (year) 2 2 2 IV.2.7 Initial working capital The initial working capital is the essential working capital for the first year of operation. The working capital is calculated as: Working Capital = Product in stock + Raw material in stock + Cash + AR – AP Table IV.8 Initial Working capital Items Cost (USD) 6,293,568 0 2,942,866 0 5,885,731 Requirement Cash Stock of product Stock of material AR AP 1 months 0.5 months 0.5 months 1 months 1 months Initial Working capital 3,350,703 IV.2.8 Financial cost in construction stage The financial cost in construction stage is interest in the period of construction. It is an element of investment cost. The financial cost is calculated with the following assumption: - Debt/Equity ratio: 70%/30%; - Interest rate: 7%/year; Table IV.9 Financial cost in construction stage Investment Equity Debt Opening ($) Year 1 12,065,951 12,065,951 0 0 Year 2 108,593,563 108,593,563 0 0 Year 3 201,099,190 0 201,099,190 0 Year 4 80,439,676 0 80,439,676 215,147,153 Total 402,198,381 120,659,514 281,538,866 215,147,153 Page 50 Debt in period Interest 0 0 0 0 201,099,190 14,047,963 80,439,676 281,538,866 20,648,481 34,696,443 IV.2.9 Estimated total investment cost Table IV.10 Estimated total investment cost No. 1 2 3 Items Construction cost Equipment cost Owner’s project management cost Value 72,782,639 223,126,374 1,723,265 4 5 Project consultancy cost Miscellaneous 45,667,550 3,359,337 6 Contingency and escalation 52,188,512 TIC without VAT Initial working capital Financial cost in construction stage Value added tax 398,847,678 3,350,703 34,696,443 39,884,768 TIC including VAT 476,779,592 IV.3 Economic efficiency calculation IV.3.1 Basis for assessment All costs are escalated with inflation of 2% per year except natural gas and Ammonia prices, which have their specific inflation rates. a. Utilities, raw materials price Raw water cost for the Project is the same as that for Phu My Fertilizer Plant. It costs 0.36 USD/m3 in 2011. River water cost for Project is calculated 1% of tax price of surface water resource 0.095 USD/m3 which Ba Ria – Vung Tau People’s Committee regulated in Decision No. 55/2011/QĐ-UBND dated September 19, 2011. It costs 0.00095 USD/m3 in 2011. The electricity consumed by the plant will be produced within the plant and no excess of energy is expected to be sold to the grid. The price of electricity has not been taken into account in economic effectiveness assessment for the Project. Chemicals and catalysts are estimated 1.8% of natural gas (main raw material of Ammonia production). Ammonia price are forecast with linear regression model (III.2.8) based on WTI Crude Oil price. The forecast Ammonia price as below: Table IV.11 Forecast Ammonia price Page 51 Year Ammonia price (USD/ton) 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 604.2 640.1 679.9 694.6 709.2 737.8 751.5 780.5 794.8 817.5 845.5 874.5 904.5 935.5 967.6 1,000.8 1,035.1 1,070.6 1,107.3 1,145.3 b. Financial cost  Loan/Investor Equity structure:  70% loan, interest rate 7% per year (in USD);  30% investor equity, cost of capital is 14%, calculated as II.5;  Weighted Average Cost of Capital (WACC) for Project is 7.87%;  Interest during construction period will be accrued to debt. Debt and interest cost with fixed rate will be paid seven years after construction phase.  Depreciation: depreciation time is categorized in three groups as follows:  Equipment cost: 8 years;  Construction cost: 12 years;  Other costs: 5 years; c. Corporate income tax: Corporate income tax: since the Ammonia plant is built in Tan Thanh district, Ba Ria – Vung Tau, incentives and exemption of corporate income tax are applied for the Project according to article 15 and 16 of Decree No.124/2008/ND-CP. Corporate income tax will be calculated as follows: Table IV.12 Corporate income tax rate Page 52 Period Enterprise income tax rate First two years The next four years The next four years The next years 0% 10% 20% 25% d. Other costs: - Sale and marketing costs: sale and marketing cost is calculated as percentage of Ammonia sales return as 2%; - Wages and salaries: wages and salaries are based on the personnel organization list in chapter VI and average salary of managers and employees. The average salary is calculated based on Phu My Fertilizer Plant 2011’s third quarter salary data. Table IV.13 Annual wages and salaries estimate Quantity Average salary in 2011 (USD/month) Indexed salary in 2011 (USD/year) Month/year Manager 23 1,200 13 358,800 Employee 303 470 13 1,851,330 Total 326 2,210,130 - Site leasing cost: annual site leasing cost includes raw land leasing cost and fees to use the infrastructure for the whole plant’s area: Table IV.14 Site leasing cost Category Price in 2011 (USD/m2/year) Raw land (within battery limit) leasing cost 0.19 Fees for using infrastructure within battery limit 0.41  Insurance: annual insurance cost during operation phase is estimated at about 0.5% of total investment cost, including insurance for mechanical failure, reduced production due to equipment failure that lasts for more than 30 days, workers’ risks and other risks. The value of insurance is based on data from European plants and does not include “Construction All Risk” (CAR), which is already included in total investment cost;  Laboratory cost: laboratory cost is estimated at 0.05% of the fixed investment cost;  Technical assistance cost is estimated at 0.05% of the fixed investment cost;  Annual maintenance cost is approximately 0.8% of the fixed investment cost; Page 53  Three-year maintenance cost: The plant will be shut down for regular maintenance. This should take around three weeks and should be done every three years called a “turnaround”. The purpose of this maintenance is to inspect and clean some equipment, to replace the catalyst and to ensure maintenance of rotating equipment (compressors, pumps, turbines). Yearly maintenance costs have been estimated to be 0.7 % of the fixed investment cost per year. IV.3.2 Economic result Table IV.15 Revenue and cost for the first year of operating at 100% capacity (2017) No. I. Category Total (USD) % Revenue Revenue Ammonia 288,056,383 100% 288,056,383 100% II. Costs 184,994,480 64% II.1. II.1.1. 1 2 3 4 II.1.2. 1 2 3 4 5 6 Production cost Variable costs Natural gas Raw water Cooling water Chemicals & Catalysts Fixed costs Sales and marketing cost Salaries Site leasing cost Insurance Laboratory cost Technical assistance cost Infrastructure maintenance cost Maintenance cost Major maintenance cost Financing costs Depreciation cost Interest cost 114,942,069 77,409,414 75,872,932 162,005 8,764 1,365,713 37,532,656 5,761,128 2,488,965 83,232 2,022,114 202,211 20,221,143 1 7 8 9 II.2. 1 2 % Cost 100 % 40% 62% 27% 42% 26% 41% 13% 20% 24% 18% 7% 38% 27% 11% 687,519 3,235,383 2,830,960 70,052,411 50,515,311 19,537,100 Financial effectiveness is as follows: - Internal rate of return (IRR): 30%; Page 54 - Net present value (NPV): 1.25 billion USD; - Pay-back time: 3 years and 8 months; Page 55 IV.4 Risk factors and sensitivity analysis IV.4.1 Risk of exchange rate In Vietnam, the exchange rate is controlled by Government. Statistic data shows that the increasing of USD/VND exchange rate is around 5%/year from 2007-2011. The increasing of exchange rate canHistorical cause the risks for project: Figure IV.16: exchange rate - Increase the investment cost. Because the equipment cost (56% of total investment cost) is estimated by USD. The increasing of exchange rate can cause the increasing of investment cost. However, in this project, investor will look for the debt in USD from the international bank. Therefore, the changing of exchange rate will not effect to investment cost; - Increase the product price. The product price is forecast in USD and customers will pay in VND to buy the product. Therefore, the increasing of exchange rate may cause customers buy products from others suppliers. However, in reality, there is no producer in Vietnam to supply industrial Ammonia. Customers can’t change to others domestic suppliers to buy the product. If customers import product from other countries, they also have to pay the same amount of VND because the product price is forecast equivalently with import price; - Increase the feedstock cost. Because the feedstock price is set by Government in USD and plant will pay in VND at the payment time, the increasing of exchange rate may increase the production cost. However, because the product price is also forecast in USD and received the sale return in VND at the same time, the increasing of exchange rate won’t make project loose profit. - From these above reasons, the changing of exchange rate won’t effect to our project efficiency. IV.4.2 Risk of product price The product price may cause the follow risks for projects: - Increasing of product price make customer look for substitute product. - Decreasing of product price make the project’s economic efficiency negative. Page 56 - As mentioned above about the application of Ammonia in some industries, it is difficult to use a substitute of Ammonia to produce fertilizers and other chemical. Therefore, the risk of substitute product is not high. - Normally, the Ammonia price increase year by year at average ratio of 20%. In the crisis period, year 2009, the Ammonia price is low at around 250 USD/ton, decrease 42% compare with that in 2008. However, because the feedstock price decreases equivalently with Ammonia price, the economic efficiency of project won’t be affected. The sensitivity analysis (section IV.4.5) will show the changing of project’s IRR when product price changes +/- 25% without the changing of feedstock price. IV.4.3 Risk of feedstock price The increasing of feedstock price may take out the profit of the plant. In Vietnam, natural gas is set priority to supply to power, food … and the natural gas price is controlled by Vietnam Government. Therefore, the risk of increasing feedstock price is not very high. The sensitivity analysis (section IV.4.5) will show the changing of project’s IRR when feed stock price changes +/- 25% without the changing of product price. In case of importing natural gas, the feedstock price at plant gate will be equal 11 USD/mBTU. The project’s financial indicator will be: - Internal rate of return (IRR): 26%; - Net present value (NPV): 1.03 billion USD; - Pay-back time: 4 years and 6 months; IV.4.4 Risk of investment cost The total investment cost is estimated with the accuracy range of -15%/+30% based on the licensor’s equipment quotation. The risk of increasing total investment cost due to changing equipment price from licensor is low because the quotation is compared with similar plant in the world and in Vietnam. The investment cost can increase due to the delay in construction period. The sensitivity analysis (section IV.4.5) will show the changing of project’s IRR when total investment cost changes +/- 25%. IV.4.5 Risk of domestic market share lost As mentioned in section IV.1, product of this project will be sold in domestic market which has 10% higher of product price compare with FOB price. The domestic price is higher because of the import tax and the advantage of distance from plant to target customer compare with that from import market. In case of discontinuing buying Ammonia for domestic production, Ammonia will be export at FOB price which is 10% lower than domestic price. At that price, project still has economic efficiency with IRR 26.6% (section IV.4.6 – Sensitivity analysis). IV.4.6 Sensitivity analysis The sensitivity analysis shows the effect of three main factors (product price, feedstock price and total investment cost) to project’s efficiency. The analysis is done by changing +/- 25% of each factor. Page 57 Figure IV.17: Sensitivity analysis From the chart, we can see that the Ammonia price will affect most to project’s efficiency. After that, total investment cost and feed stock price are second and third factors. Table IV.16 Sensitivity analysis of Ammonia price Change of Ammonia price -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% Price (USD/ton) IRR 453.2 483.4 513.6 543.8 574.0 604.2 634.4 664.6 694.8 725.0 755.3 Change of IRR 21.1% 23.1% 25.0% 26.8% 28.6% 30.3% 32.1% 33.8% 35.4% 37.1% 38.7% -30.3% 0.0% 27.5% Table IV.17 Sensitivity analysis of Total investment cost Change of investment cost -25% -20% -15% -10% Plant investment cost 299,135,758 319,078,142 339,020,526 358,962,910 IRR 36.7% 35.2% 33.8% 32.6% Change of IRR 20.9% Page 58 Change of investment cost -5% 0% 5% 10% 15% 20% 25% Plant investment cost Change of IRR IRR 378,905,294 398,847,678 418,790,062 438,732,446 458,674,829 478,617,213 498,559,597 31.4% 30.3% 29.4% 28.4% 27.6% 26.8% 26.0% 0.0% -14.2% Table IV.18 Sensitivity analysis of Total investment cost Change of Natural gas price -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% Price IRR 4.21 4.49 4.77 5.05 5.33 5.61 5.89 6.17 6.45 6.73 7.01 32.8% 32.3% 31.8% 31.3% 30.8% 30.3% 29.9% 29.4% 28.9% 28.4% 27.9% Change of IRR 8.2% 0.0% -8.0% Page 59 CHAPTER V. CONCLUSIONS AND RECOMMENDATIONS This closing chapter reviews the conclusions derived from the research questions stated in Chapter 1 and summarizes the literature review, the methodology and some major findings and solutions expected for the feasibility study stage of whether or not PVFCCo should invest in a new ammonia plant. Based on that, recommendations will be made. V.1 Conclusions 1. Chapter 1 has clearly stated the purpose of the thesis is to conduct a financial feasibility study on building a new ammonia production plant and presented the rationale for the study. The preliminary Ammonia market study has pointed that investing in an Ammonia plant is important at this time and will be a good opportunity for Phu My Fertilizer and Chemicals Company to supply the lacked ammonia in domestic market in the upcoming years. A financial feasibility study therefore is an essential step in order to confirm where or not investing a new ammonia plant will be financially beneficial and feasible. During this stage, the following questions need to be answered:  Is there a market for the final product?  Is the feedstock supply secured for the lifetime of the project?  Is the project financially, economically and socially feasible?  What are the main risks?  Will this project go on the next stage? 2. The literature review has been presented briefly with information regarding the project management and expected accuracy range in feasibility study phase. For this project, “Investment of a new ammonia plant for PVFCCo”, considering the details of the study, this feasibility study is categorized as “Cost Estimate Class 4”. The budget estimate for this class 4 estimate is typically from -15% to +30%. Chapter 2 has also gone through some of the important terms for a financial feasibility study such as price forecast, TIC, NPV, IRR, etc. 3. Chapter 3 presents the methodology that was used to serve the purpose of finding the solutions. Market research methodology, price forecast methodology and financial indicators calculation methodology were presented in this chapter. 4. The findings and solutions were presented in Chapter 4 and covered al the answers for the research questions stated in Chapter 1:  Detailed market research have shown that the amount of domestic Ammonia deficit will be approximately 360 KT in 2015 and 450 KT in 2016 and will keep increasing in the future due to population growth;  According to gas supply – demand balance and an exploiting plan for Cuu Long and Nam Con Son fields in exploiting, developing and preparing development, an amount of excess gas is at least 0.8 bcm/year and an average of 2.1 bcm in the period 2011 – 2021, that is capable of meeting the demand of Ammonia Page 60 plant with capacity up to 800 thousand tons per year and other customers in Southeast region;  The total investment cost (TIC) is estimated based on construction cost, equipment cost, management cost, project consultancy cost, miscellaneous cost and contingency and escalation cost. Without VAT, the TIC is estimated to be $399M and the TIC including VAT is $477M. This study also evaluates the financial effectiveness based on financial indicators like IRR, NPV and Payback time. These results show that the IRR is 30% , NPV is 1.25 billion USD and the total pay-back time is 3 years and 8 months. These financial indicators prove that the project of investing an Ammonia plant is financially feasible and beneficial;  Section IV.4 has shown that the three main risks for this project are product price, feedstock price and total investment cost. The sensitivity analysis shows the effect of three main factors to project’s efficiency. The analysis is done by changing +/- 25% of each factor. The results show that the Ammonia price will affect most to project’s efficiency. After that, total investment cost and feed stock price are second and third factors In conclusion, construction investment of Ammonia manufacturing plant is important in processing oil and gas field, highly feasible, completely suitable for strategies and development master plans of the country in order to enhance usage value of domestic natural gas resource, to supply stably Ammonia which is the material for defense and chemicals industries, to create autonomy and to pave the way for development of defense, chemicals, fertilizers, petrochemicals industries of Vietnam, bring great benefits of politics – defense security – economy - society for locals and nation and does not impact on environment, defense security, and For PetroVietnam, Ammonia Plant is an efficient project in developing downstream, enhancing deep processing, diversifying products and improving gas usage effectively. In addition, this project will help to confirm the strength of the oil industry in both domestically and internationally. For PVFCCo, Ammonia Plant will pave the way for chemicals development in order to ensure that PVFCCo will have permanently sustainable and balanced development from 2015 onwards. Hence, the construction investment of Ammonia manufacturing plant is eminently urgent. Page 61 V.2 Recommendations Through this preliminary study, investing an ammonia plant will bring great benefits to the gas processing industry, to Petrovietnam and to the Investor of the project – PVFCCo. In order to proceed to the next stages, this study recommends the followings: - PVFCCo should have a full feasibility study of investing an ammonia plant that will cover in details technology, location, environment impact assessment and fire prevention and fighting in order to have a closer estimate of total investment cost as well as to have a more precise risk analysis; - A full feasibility study should be submitted to Petrovietnam and higher authorities at the earliest time for investment and construction approval; - PVFCCo should work closely with Petrovietnam and PVGas to secure a stable supply of feedstock for the project. Page 62 REFERENCES AACE International Recommended Practices (2003). AACE International Recommended Practice No. 17R-97, Cost estimation classification system, TCM Framework: 7.3-Cost Estimating and Budgeting. Aswasth Damodaran (2002). Investment Valuation- Tools and Techniques for Determining the Value of any Asset. Bender, R., Ward, K. (2009). Corporate Financial Strategy. Oxford: Elsevier. Brealey, R., Marcus, A., Myers, S. (2007). Fundamentals of corporate finance. New York: McGraw-Hill/Irwin. Churchill, G.A. and Iacobucci (2004). Marketing Research: Methodological Foundation, 9th edition, South-Western College Pub. CMAI (2010). Forecast Methodology. Damodaran, A. (2006). Valuation approaches and metrics: A survey of the theory and evidence. Stern School of Business. Retrieved from http://pages.stern.nyu.edu/~adamodar/pdfiles/papers/valuesurvey.pdf. Decrees of the Government on the price of natural gas. Duffy, F. (2008). Research Methods in Economics and Business, EBSCO Research Starters, EBSCO Publishing Inc. EIA (2012). Annual Energy Outlook 2012. James P. Lewis (2000). The project manager's desk reference: a comprehensive guide to project planning, scheduling, evaluation, and systems. p.185. Kothari, S.P. (2001). Capital markets research in accounting. Journal of Accounting and Economics 31, 105-231. Law on Import tax and Export tax (No. 45/2005/QH11) Matson, James (2000). Cooperative Feasibility Study Guide, United States Department of Argriculture, Rural Business-Cooperative Service. Ministry of Construction (2010). Circular dated 04/2010/TT-BXD Ministry of Contruction (2008). Decision No. 957/ QĐ-BXD of Ministry of Construction Ministry of Finance (2000). Circular No. 109/2000/TT-BTC Ministry of Finance (2008). Circular No. 134/2008/TT-BTC Ministry of Finance (2011). Circular No. 19/2011/TT-BTC Page, J.S. (1996). Conceptual Cost Estimating Manual. Gulf Publishing, Palepu, K., Healy, P.M., Bernard, V.L (2000). Business Analysis and Valuation Using Financial Statements. Ohio: Thompson. Petrovietnam Fertilizer and Chemicals Corporation (PVFCCo) (2011). 2011 Annual Report. Page 63 Petrovietnam. (2011). Decision 004/CVNB-VQN on gas pricing for urea fertilizer production. PGS. TS. Nguyễn Trọng Hoài (2010). Dự báo và phân tích dữ liệu trong Kinh tế và tài chính. Project Management Institute (2010). A Guide to the Project Management Body of Knowledge p.27-35. Rappaport, A. (1998). Creating Shareholder Value. The Free Press. Richard A.Brealey, Stewart C.Meyer, biên dịch Xinh Xinh, hiệu đính Đình Khôi, (2010). ,Nguyên lý tài chính công ty. SRI Consulting. (2009). Process Economics Program Yearbook 2008. Zurich Williams, C. (2007). Research Methods, Journal of Business and Economics Research, 5(3), 65-71. www.stern.nyu.edu. Page 64 APPENDIX 1- Total Investment Cost Description Ratio Construction Cost Equipment Cost Process Equipment Cost Bulk Materials Freight, taxes and duties Freight Installation cost Start-up Chemicals and Catalyst 2-years spare part License fee 54% 10% 5% 5% 4% 3% Owner's project management cost Project consultancy cost Site Survey Feasibility Study Environment Impact Assessment (EIA) EPC biding Project management of EPC Design verification Estimated Cost verification Materials quality testing, construction quality testing Investment verification Fee 15% FS verification fee Detail Design verfication fee Estimated Cost verification fee Miscellaneous Land leasing on construction stage Construction Insurance Training of Owner's Operators Cost for Commissioning 1.50% 0.68% Natural Gas Cost for Commissioning Ammonia Sales return from Commissioning Audit, investigation, approval of balance sheet Audit the balance sheet Investigation, approval of balance sheet Contractor Income Tax Provision for Contingency Contigency of project Escalation 10% Plant investment cost Initial working captital Financial cost in construction stage Total investment Cost w/o VAT VAT Total investment Cost with VAT 10% Before tax 72,782,639 223,126,374 123,274,240 66,568,090 12,327,424 12,327,424 6,163,712 6,163,712 4,930,970 3,698,227 1,723,265 45,667,550 200,000 567,983 60,000 70,913 44,386,352 35,800 33,273 300,000 13,229 2,400 5,400 5,429 3,359,337 259,818 5,947,395 2,696,152 -12,270,769 24,720,068 -36,990,837 251,582 148,316 103,266 6,475,160 52,188,512 34,665,917 17,522,595 398,847,678 3,350,703 34,696,443 436,894,824 39,884,768 476,779,592 Page 65 APPENDIX 2- Debt and Payment Year Opening ($) Loan Interest Payment Original payment Interest payment Closing Interest payment Year Opening ($) Loan Interest Payment Original payment Interest payment Closing Interest payment 2012 0.00 0.00 0.00 0.00 0.00 0.00 0 2013 0.00 0.00 0.00 0.00 0.00 0.00 0 2014 0.00 201,099,190.30 14,047,962.65 0.00 0.00 0.00 215,147,153 2015 215,147,152.94 80,439,676 20,648,480.62 0.00 0.00 0.00 316,235,310 2016 316,235,309.68 0 22,090,898.58 -58,649,001.81 -36,558,103 -22,090,898.58 279,677,206 2017 279,677,206 0 19,537,099.79 -58,649,001.81 -39,111,902 -19,537,099.79 240,565,304 0 0 -14,047,963 -20,648,481 -22,090,899 -19,537,100 2018 240,565,304 0 16,804,903.12 -58,649,001.81 -41,844,099 -16,804,903.12 198,721,206 2019 198,721,206 0 13,881,846.42 -58,649,001.81 -44,767,155 -13,881,846.42 153,954,050 2020 153,954,050 0 10,754,597.00 -58,649,001.81 -47,894,405 -10,754,597.00 106,059,646 2021 106,059,646 0 7,408,890.79 -58,649,001.81 -51,240,111 -7,408,890.79 54,819,535 2022 54,819,535 0 3,829,467.30 -58,649,001.81 -54,819,535 -3,829,467.30 0 -16,804,903 -13,881,846 -10,754,597 -7,408,891 -3,829,467 Page 66 APPENDIX 3- Cashflow Year 2012 2013 2014 2015 2016 2017 2018 2019 0 0 0 0 -12,065,951 -12,065,951 0 0 0 -12,065,951 -108,593,563 -108,593,563 0 0 0 -108,593,563 -201,099,190 -201,099,190 0 0 0 -201,099,190 -80,439,676 -80,439,676 0 0 -3,350,703 -83,790,379 244,702,338 244,702,338 -108,093,373 0 -108,093,373 0 -30,878,556 105,730,409 288,056,383 288,056,383 -114,942,069 0 -114,942,069 0 -5,344,202 167,770,113 305,951,727 305,951,727 -125,901,913 0 -113,376,402 -12,525,511 -2,146,516 177,903,297 312,550,827 312,550,827 -125,329,704 0 -111,682,597 -13,647,107 -737,850 186,483,273 -12,065,951 -120,659,514 -321,758,704 -405,549,083 -299,818,674 -132,048,561 45,854,736 232,338,009 2020 2021 2022 2023 2024 2025 2026 2027 319,150,011 319,150,011 -124,863,623 0 -110,084,015 -14,779,609 -751,554 193,534,834 332,013,686 332,013,686 -126,380,059 0 -108,703,478 -17,676,582 -1,526,588 204,107,039 338,174,306 338,174,306 -144,865,279 0 -107,279,264 -37,586,015 -703,209 192,605,818 351,212,752 351,212,752 -147,280,023 0 -106,080,715 -41,199,307 -1,554,929 202,377,801 357,682,374 357,682,374 -153,962,611 0 -104,836,710 -49,125,902 -742,876 202,976,886 367,877,462 367,877,462 -155,133,088 0 -103,751,033 -51,382,055 -1,215,339 211,529,035 380,491,643 380,491,643 -170,415,529 0 -102,795,543 -67,619,986 -1,521,103 208,555,011 393,538,352 393,538,352 -173,026,979 0 -101,928,573 -71,098,406 -1,578,483 218,932,890 425,872,843 629,979,882 822,585,700 1,024,963,501 1,227,940,387 1,439,469,422 1,648,024,434 1,866,957,324 Cash flow In-flow Sale return Out-flow Investment Production cost Income tax Net Working Capital Net cash-flow Cumulative net cashflow Year Cash flow In-flow Sale return Out-flow Investment Production cost Income tax Net Working Capital Net cash-flow Cumulative net cashflow Page 67 Year 2028 2029 2030 2031 2032 2033 2034 2035 407,032,421 407,032,421 -177,619,531 0 -101,148,568 -76,470,963 -1,637,657 227,775,233 420,989,189 420,989,189 -180,587,840 0 -100,454,057 -80,133,783 -1,698,693 238,702,656 435,424,522 435,424,522 -183,738,873 0 -99,843,657 -83,895,216 -1,761,659 249,923,989 450,354,829 450,354,829 -187,075,759 0 -99,316,068 -87,759,690 -1,826,628 261,452,442 465,797,083 465,797,083 -190,601,825 0 -98,870,073 -91,731,753 -1,893,674 273,301,584 481,768,837 481,768,837 -194,320,609 0 -98,504,533 -95,816,076 -1,962,872 285,485,357 498,288,248 498,288,248 -198,235,855 0 -98,218,391 -100,017,464 -2,034,301 298,018,092 515,374,095 515,374,095 -202,351,523 0 -98,010,666 -104,340,857 64,867,390 377,889,961 2,094,732,557 2,333,435,213 2,583,359,202 2,844,811,644 3,118,113,228 3,403,598,585 3,701,616,677 4,079,506,638 Cash flow In-flow Sale return Out-flow Investment Production cost Income tax Net Working Capital Net cash-flow Cumulative net cashflow Page 68 APPENDIX 4- Income Statement Year 2012 2013 2014 2015 2016 2017 Income Statement Sales Turnover Operating rate Production (tons) Ammonia price ($) Ammonia sales ($) Production Cost Variable Cost Raw materials Cost Raw water River water Chemical & catalyst Fixed Cost Sale & Marketing Labor Cost Land leasing Insurance Labs Technical assistance General Cost Maintenance 3 year maintenance 90% 100% 405,000 450,000 604 640 244,702,338 288,056,383 108,093,373 114,942,069 72,050,770 77,409,414 70,628,773 142,946 7,733 75,872,932 162,005 8,764 1,271,318 36,042,603 4,894,047 2,440,162 81,600 1,982,465 198,247 1,365,713 37,532,656 5,761,128 2,488,965 83,232 2,022,114 202,211 19,824,650 674,038 3,171,944 20,221,143 687,519 3,235,383 2,775,451 2,830,960 EBITDA 136,608,965 173,114,314 Depreciation 50,515,311 31,919,343 7,216,156 11,379,811 50,515,311 31,919,343 7,216,156 11,379,811 86,093,654 122,599,003 Equipments Construction Others EBIT Interest EBT Income Tax Net income 22,090,899 19,537,100 64,002,755 103,061,904 0 0 64,002,755 103,061,904 Page 69 Year 2018 2019 2020 2021 2022 Income Statement Sales Turnover Operating rate Production (tons) Ammonia price ($) Ammonia sales ($) Production Cost Variable Cost Raw materials Cost Raw water River water Chemical & catalyst Fixed Cost Sale & Marketing Labor Cost Land leasing Insurance Labs Technical assistance General Cost Maintenance 3 year maintenance 100% 100% 100% 100% 100% 450,000 450,000 450,000 450,000 450,000 680 695 709 738 751 305,951,727 312,550,827 319,150,011 332,013,686 338,174,306 113,376,402 111,682,597 110,084,015 108,703,478 107,279,264 74,850,409 72,376,483 69,984,815 67,672,680 65,437,444 73,355,820 165,245 8,939 70,922,215 168,550 9,118 68,569,345 171,921 9,300 66,294,533 175,360 9,486 64,095,188 178,867 9,676 1,320,405 38,525,993 6,119,035 2,538,745 84,897 2,062,557 206,256 1,276,600 39,306,114 6,251,017 2,589,520 86,595 2,103,808 210,381 1,234,248 40,099,200 6,383,000 2,641,310 88,326 2,145,884 214,588 1,193,302 41,030,797 6,640,274 2,694,136 90,093 2,188,802 218,880 1,153,713 41,841,820 6,763,486 2,748,019 91,895 2,232,578 223,258 20,625,566 701,269 3,300,091 21,038,077 715,295 3,366,092 21,458,839 729,601 3,433,414 21,888,015 744,193 3,502,082 22,325,776 759,076 3,572,124 2,887,579 2,945,331 3,004,237 3,064,322 3,125,609 EBITDA 192,575,324 200,868,230 209,065,997 223,310,209 230,895,042 Depreciation 50,515,311 31,919,343 7,216,156 11,379,811 50,515,311 31,919,343 7,216,156 11,379,811 50,515,311 31,919,343 7,216,156 11,379,811 39,135,500 31,919,343 7,216,156 0 39,135,500 31,919,343 7,216,156 0 142,060,013 150,352,919 158,550,686 184,174,709 191,759,542 Equipments Construction Others EBIT Interest EBT Income Tax Net income 16,804,903 13,881,846 10,754,597 7,408,891 3,829,467 125,255,110 136,471,073 147,796,089 176,765,819 187,930,075 12,525,511 13,647,107 14,779,609 17,676,582 37,586,015 112,729,599 122,823,965 133,016,480 159,089,237 150,344,060 Page 70 Year 2023 2024 2025 2026 2027 Income Statement Sales Turnover Operating rate Production (tons) Ammonia price ($) Ammonia sales ($) Production Cost Variable Cost Raw materials Cost Raw water River water Chemical & catalyst Fixed Cost Sale & Marketing Labor Cost Land leasing Insurance Labs Technical assistance General Cost Maintenance 3 year maintenance 100% 100% 100% 100% 100% 450,000 450,000 450,000 450,000 450,000 780 795 818 846 875 351,212,752 357,682,374 367,877,462 380,491,643 393,538,352 106,080,715 104,836,710 103,751,033 102,795,543 101,928,573 63,276,560 61,187,564 59,168,075 57,215,793 55,328,491 61,968,807 182,444 9,870 59,912,970 186,093 10,067 57,925,336 189,815 10,268 56,003,642 193,611 10,474 54,145,702 197,483 10,683 1,115,439 42,804,156 7,024,255 2,802,979 93,733 2,277,229 227,723 1,078,433 43,649,146 7,153,647 2,859,039 95,607 2,322,774 232,277 1,042,656 44,582,958 7,357,549 2,916,220 97,520 2,369,229 236,923 1,008,066 45,579,750 7,609,833 2,974,544 99,470 2,416,614 241,661 974,623 46,600,082 7,870,767 3,034,035 101,459 2,464,946 246,495 22,772,291 774,258 3,643,567 23,227,737 789,743 3,716,438 23,692,292 805,538 3,790,767 24,166,138 821,649 3,866,582 24,649,460 838,082 3,943,914 3,188,121 3,251,883 3,316,921 3,383,259 3,450,924 EBITDA 245,132,037 252,845,664 264,126,429 277,696,100 291,609,779 Depreciation 39,135,500 31,919,343 7,216,156 0 7,216,156 0 7,216,156 0 7,216,156 0 7,216,156 0 7,216,156 0 7,216,156 0 7,216,156 0 7,216,156 0 205,996,537 245,629,508 256,910,273 270,479,944 284,393,623 Equipments Construction Others EBIT Interest EBT Income Tax Net income 0 0 0 0 0 205,996,537 245,629,508 256,910,273 270,479,944 284,393,623 41,199,307 49,125,902 51,382,055 67,619,986 71,098,406 164,797,230 196,503,607 205,528,218 202,859,958 213,295,217 Page 71 Year 2028 2029 2030 2031 2032 Income Statement Sales Turnover Operating rate Production (tons) Ammonia price ($) Ammonia sales ($) Production Cost Variable Cost Raw materials Cost Raw water River water Chemical & catalyst Fixed Cost Sale & Marketing Labor Cost Land leasing Insurance Labs Technical assistance General Cost Maintenance 3 year maintenance EBITDA Depreciation Equipments Construction Others EBIT Interest EBT Income Tax Net income 100% 100% 100% 100% 100% 450,000 450,000 450,000 450,000 450,000 905 936 968 1,001 1,035 407,032,421 420,989,189 435,424,522 450,354,829 465,797,083 101,148,568 100,454,057 53,504,018 51,740,294 99,843,657 50,035,308 99,316,068 48,387,116 98,870,073 46,793,838 52,349,399 201,433 10,897 50,612,689 205,462 11,115 48,933,595 209,571 11,337 47,310,205 213,762 11,564 45,740,673 218,038 11,795 942,289 47,644,550 8,140,648 3,094,716 103,489 2,514,245 251,424 911,028 48,713,763 8,419,784 3,156,610 105,558 2,564,530 256,453 880,805 49,808,350 8,708,490 3,219,742 107,669 2,615,820 261,582 851,584 50,928,953 9,007,097 3,284,137 109,823 2,668,137 266,814 823,332 52,076,235 9,315,942 3,349,820 112,019 2,721,500 272,150 25,142,450 854,843 4,022,792 25,645,299 871,940 4,103,248 26,158,205 889,379 4,185,313 26,681,369 907,167 4,269,019 27,214,996 925,310 4,354,399 3,519,943 3,590,342 3,662,149 3,735,392 3,810,099 305,883,853 320,535,132 335,580,864 351,038,761 366,927,010 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 305,883,853 320,535,132 335,580,864 351,038,761 366,927,010 0 0 0 0 0 305,883,853 320,535,132 335,580,864 351,038,761 366,927,010 76,470,963 80,133,783 83,895,216 87,759,690 91,731,753 229,412,890 240,401,349 251,685,648 263,279,070 275,195,258 Page 72 Year 2033 2034 2035 100% 450,000 1,071 481,768,837 100% 450,000 1,107 498,288,248 100% 450,000 1,145 515,374,095 Production Cost Variable Cost Raw materials Cost Raw water River water Chemical & catalyst Fixed Cost Sale & Marketing Labor Cost Land leasing Insurance Labs Technical assistance General Cost Maintenance 3 year maintenance 98,504,533 45,253,657 44,223,209 222,398 12,031 796,018 53,250,876 9,635,377 3,416,816 114,260 2,775,930 277,593 27,759,296 943,816 4,441,487 3,886,301 98,218,391 43,764,817 42,756,089 226,846 12,272 769,610 54,453,574 9,965,765 3,485,152 116,545 2,831,448 283,145 28,314,482 962,692 4,530,317 3,964,027 98,010,666 42,325,618 41,337,640 231,383 12,517 744,078 55,685,047 10,307,482 3,554,855 118,876 2,888,077 288,808 28,880,772 981,946 4,620,923 4,043,308 EBITDA 383,264,304 400,069,857 417,363,429 0 0 0 0 0 0 0 0 0 0 0 0 383,264,304 400,069,857 417,363,429 0 383,264,304 95,816,076 0 400,069,857 100,017,464 0 417,363,429 104,340,857 287,448,228 300,052,393 313,022,572 Income Statement Sales Turnover Operating rate Production (tons) Ammonia price ($) Ammonia sales ($) Depreciation Equipments Construction Others EBIT Interest EBT Income Tax Net income Page 73 APPENDIX 5- Ammonia market survey answers AMMONIA MARKET QUESTIONNAIRE – PVFCCo Interviewee: Mr. Hoang Quoc Hung, General Manager Chemicals Division, PVFCCo 1. Your company uses Ammonia for the following purposes (click all that applies): Fertilizer production If checked, please specify fertilizer type: Urea, annual demand is 450 KT DAP, annual demand is……………………………. ……………. SA, annual demand is…………………………………………….. Others, which are…………………………………......................... Plastics, annual demand is……………………………………………………. Fiber, annual demand is………………………………………………………. Explosives, annual demand is………………………………………………… If checked, please specify:…………………………………………………… Chemicals, annual demand is………………………………………………… Foods, annual demand is……………………………………………………... If checked, please specify food type: MSG, annual demand is…………………………………………… Others, which are………………………………….......................... 2. Annual ammonia consumption demand (thousand tons): 450 3. Expected demand in the future (thousand tons/year): 540, 450 KT for annual production of Urea and 90KT for the new Ammonium Nitrate plant From year: 2016 4. The current source of Ammonia for your company is (click all that applies): Self-production, if checked, please specify: Capacity (thousand tons/year) = 450 Extra ammonia if any (thousand tons/year) = 0 What do you do with the extra ammonia production?..................................... ................................................................................................................................ Foreign suppliers Domestic suppliers Others, please specify:………………………………………………………… Page 74 5. The current method of supplying Ammonia for your company: By truck By vessel. If Ammonia is transported by vessel, please choose the method of ammonia transportation from port to your company’s storage: By truck By pipeline Others, please specify: self-produce within the plant 6. Specifications of the Ammonia product your company is currently using? Commercial standard: Size: ≥ 92% total with size from 2,0 – 4,0 mm; ≤ 1% total with size smaller than 1mm; Nitrogen: ≥ 46.1% wt.; Moisture: ≤ 0.3% wt.. 7. What do you expect from domestic ammonia production companies? Nothing Page 75 AMMONIA MARKET QUESTIONNAIRE – Camau Fertilizer Plant Interviewee: Mr. Van Tien Thanh, Director Camau Fertilizer Plant 1. Your company uses Ammonia for the following purposes (click all that applies): Fertilizer production If checked, please specify fertilizer type: Urea, annual demand is 450 KT DAP, annual demand is……………………………. ……………. SA, annual demand is…………………………………………….. Others, which are…………………………………......................... Plastics, annual demand is……………………………………………………. Fiber, annual demand is………………………………………………………. Explosives, annual demand is………………………………………………… If checked, please specify:…………………………………………………… Chemicals, annual demand is………………………………………………… Foods, annual demand is……………………………………………………... If checked, please specify food type: MSG, annual demand is…………………………………………… Others, which are………………………………….......................... 2. Annual ammonia consumption demand (thousand tons): 450 KT 3. Expected demand in the future (thousand tons/year): 450KT From year: does not change from now 4. The current source of Ammonia for your company is (click all that applies): Self-production, if checked, please specify: Capacity (thousand tons/year) = 450 Extra ammonia if any (thousand tons/year) = ………………. What do you do with the extra ammonia production?..................................... ................................................................................................................................ Foreign suppliers Domestic suppliers Others, please specify:………………………………………………………… Page 76 5. The current method of supplying Ammonia for your company: By truck By vessel. If Ammonia is transported by vessel, please choose the method of ammonia transportation from port to your company’s storage: By truck By pipeline Others, please specify: self-produce within the plant 6. Specifications of the Ammonia product your company is currently using? Commercial type: Size: ≥ 92% total with size from 2,0 – 4,0 mm; ≤ 1% total with size smaller than 1mm; Nitrogen: ≥ 46.1% wt.; Moisture: ≤ 0.3% wt.. 7. What do you expect from domestic ammonia production companies? Nothing Page 77 AMMONIA MARKET QUESTIONNAIRE – F.A Company Interviewee: Vũ Công Thắng, Director F.A. Joint Stock Company 1. Your company uses Ammonia for the following purposes (click all that applies): Fertilizer production If checked, please specify fertilizer type: Urea, annual demand is…………………………………………… DAP, annual demand is……………………………. ……………. SA, annual demand is…………………………………………….. Others, which are…………………………………......................... Plastics, annual demand is……………………………………………………. Fiber, annual demand is………………………………………………………. Explosives, annual demand is………………………………………………… If checked, please specify: 7 KT Chemicals, annual demand is………………………………………………… Foods, annual demand is……………………………………………………... If checked, please specify food type: MSG, annual demand is…………………………………………… Others, which are………………………………….......................... 2. Annual ammonia consumption demand (thousand tons): 7KT 3. Expected demand in the future (thousand tons/year): 7KT From year: 2012 4. The current source of Ammonia for your company is (click all that applies): Self-production, if checked, please specify: Capacity (thousand tons/year) = ……..... Extra ammonia if any (thousand tons/year) = ………………. What do you do with the extra ammonia production?..................................... ................................................................................................................................ Foreign suppliers Domestic suppliers Others, please specify:………………………………………………………… Page 78 5. The current method of supplying Ammonia for your company: By truck By vessel. If Ammonia is transported by vessel, please choose the method of ammonia transportation from port to your company’s storage: By truck By pipeline Others, please specify:……………………………………………... 6. Specifications of the Ammonia product your company is currently using? Commercial type, 98% concentration minimum 7. What do you expect from domestic ammonia production companies? Available supply and cheaper price. Page 79 AMMONIA MARKET QUESTIONNAIRE – Vedan Limited JSC Interviewee: Ms. Nguyen Thi Phuong, Manager Procurement Department, Vedan Limited JSC 1. Your company uses Ammonia for the following purposes (click all that applies): Fertilizer production If checked, please specify fertilizer type: Urea, annual demand is…………………………………………… DAP, annual demand is……………………………. ……………. SA, annual demand is…………………………………………….. Others, which are…………………………………......................... Plastics, annual demand is……………………………………………………. Fiber, annual demand is………………………………………………………. Explosives, annual demand is………………………………………………… If checked, please specify:…………………………………………………… Chemicals, annual demand is………………………………………………… Foods, annual demand is 24 KT If checked, please specify food type: MSG, annual demand is…………………………………………… Others, which are………………………………….......................... 2. Annual ammonia consumption demand (thousand tons): 46 3. Expected demand in the future (thousand tons/year): 47 From year: 2014 4. The current source of Ammonia for your company is (click all that applies): Self-production, if checked, please specify: Capacity (thousand tons/year) = ……..... Extra ammonia if any (thousand tons/year) = ………………. What do you do with the extra ammonia production?..................................... ................................................................................................................................ Foreign suppliers Domestic suppliers Others, please specify:………………………………………………………… Page 80 5. The current method of supplying Ammonia for your company: By truck By vessel. If Ammonia is transported by vessel, please choose the method of ammonia transportation from port to your company’s storage: By truck By pipeline Others, please specify:……………………………………………... 6. Specifications of the Ammonia product your company is currently using? Commercial type, 98% concentration minimum 7. What do you expect from domestic ammonia production companies? Available supply, cheaper price, shorter time for transportation. Page 81 AMMONIA MARKET QUESTIONNAIRE – Ajinomoto Interviewee: Ms. Nguyen Kim Ngan, Manager Procurement Department, Ajinomoto 1. Your company uses Ammonia for the following purposes (click all that applies): Fertilizer production If checked, please specify fertilizer type: Urea, annual demand is…………………………………………… DAP, annual demand is……………………………. ……………. SA, annual demand is…………………………………………….. Others, which are…………………………………......................... Plastics, annual demand is……………………………………………………. Fiber, annual demand is………………………………………………………. Explosives, annual demand is………………………………………………… If checked, please specify:…………………………………………………… Chemicals, annual demand is………………………………………………… Foods, annual demand is……………………………………………………... If checked, please specify food type: MSG, annual demand is…………………………………………… Others, which are………………………………….......................... 2. Annual ammonia consumption demand (thousand tons): 24 3. Expected demand in the future (thousand tons/year): 26 From year: 2016 4. The current source of Ammonia for your company is (click all that applies): Self-production, if checked, please specify: Capacity (thousand tons/year) = ……..... Extra ammonia if any (thousand tons/year) = ………………. What do you do with the extra ammonia production?..................................... ................................................................................................................................ Foreign suppliers Domestic suppliers Others, please specify:………………………………………………………… Page 82 5. The current method of supplying Ammonia for your company: By truck By vessel. If Ammonia is transported by vessel, please choose the method of ammonia transportation from port to your company’s storage: By truck By pipeline Others, please specify:……………………………………………... 6. Specifications of the Ammonia product your company is currently using? Commercial type, 98% concentration minimum 7. What do you expect from domestic ammonia production companies? Available supply, cheaper price. Page 83 AMMONIA MARKET QUESTIONNAIRE – Dinh Vu DAP Interviewee: Mr. Nguyen Manh Doan, Manager Process Department, Dinh Vu DAP 1. Your company uses Ammonia for the following purposes (click all that applies): Fertilizer production If checked, please specify fertilizer type: Urea, annual demand is…………………………………………… DAP, annual demand is 95 from 2015 SA, annual demand is…………………………………………….. Others, which are…………………………………......................... Plastics, annual demand is……………………………………………………. Fiber, annual demand is………………………………………………………. Explosives, annual demand is………………………………………………… If checked, please specify:…………………………………………………… Chemicals, annual demand is………………………………………………… Foods, annual demand is……………………………………………………... If checked, please specify food type: MSG, annual demand is…………………………………………… Others, which are………………………………….......................... 2. Annual ammonia consumption demand (thousand tons): 0 currently 3. Expected demand in the future (thousand tons/year): 95 From year: 2015 4. The current source of Ammonia for your company is (click all that applies): Self-production, if checked, please specify: Capacity (thousand tons/year) = ……..... Extra ammonia if any (thousand tons/year) = ………………. What do you do with the extra ammonia production?..................................... ................................................................................................................................ Foreign suppliers Domestic suppliers Others, please specify:………………………………………………………… Page 84 5. The current method of supplying Ammonia for your company: By truck By vessel. If Ammonia is transported by vessel, please choose the method of ammonia transportation from port to your company’s storage: By truck By pipeline Others, please specify:……………………………………………... 6. Specifications of the Ammonia product your company is currently using? Commercial type 7. What do you expect from domestic ammonia production companies? Easy transportation, stable price, stable supply Page 85 AMMONIA MARKET QUESTIONNAIRE – Lao Cai DAP Interviewee: Ms. Nguyen To Nga, Lao Cai DAP project manager Petroleum Processing Division, PVN 1. Your company uses Ammonia for the following purposes (click all that applies): Fertilizer production If checked, please specify fertilizer type: Urea, annual demand is…………………………………………… DAP, annual demand is 95 from 2015 SA, annual demand is…………………………………………….. Others, which are…………………………………......................... Plastics, annual demand is……………………………………………………. Fiber, annual demand is………………………………………………………. Explosives, annual demand is………………………………………………… If checked, please specify:…………………………………………………… Chemicals, annual demand is………………………………………………… Foods, annual demand is……………………………………………………... If checked, please specify food type: MSG, annual demand is…………………………………………… Others, which are………………………………….......................... 2. Annual ammonia consumption demand (thousand tons): 0 currently 3. Expected demand in the future (thousand tons/year): 95 From year: 2015 4. The current source of Ammonia for your company is (click all that applies): Self-production, if checked, please specify: Capacity (thousand tons/year) = ……..... Extra ammonia if any (thousand tons/year) = ………………. What do you do with the extra ammonia production?..................................... ................................................................................................................................ Foreign suppliers Domestic suppliers Others, please specify:………………………………………………………… Page 86 5. The current method of supplying Ammonia for your company: By truck By vessel. If Ammonia is transported by vessel, please choose the method of ammonia transportation from port to your company’s storage: By truck By pipeline Others, please specify:……………………………………………... 6. Specifications of the Ammonia product your company is currently using? Commercial type, 98% and up 7. What do you expect from domestic ammonia production companies? Available supply, cheaper price Page 87 [...]... prospects for success In simple words, a financial feasibility study will analyze and estimate the cost required and present the value and the benefits to be attained in building a new ammonia plant With that reason, this research will focus on Financial feasibility study of investment of a new ammonia plant for PVFCCo. ” I.3 Rationale Prior to doing a feasibility study for the investment of a new ammonia plant, ... research can be costly A feasibility study will help to reduce the risk of making poor decisions and Page 2 increases the chance of success A feasibility study of investment a new ammonia plant is essential in order to provide I.2 Thesis topic A feasibility study of investment a new ammonia plant is essential in order to provide PVFCCo an overview of the strengths and weaknesses of the company, the opportunities... building a new ammonia plant at this point will supply the lacked ammonia in domestic market in the upcoming years I.4 Objectives The purpose of the thesis is to conduct a financial feasibility study on building a new ammonia production plant, encompassing the following concerns:  Understand theories and research papers on financial feasibility study of a project;  Evaluate the feasibility of the ammonia. .. orientation of Vietnam relating to Ammonia production and the preliminary Ammonia market study have pointed that investing in an Ammonia plant is important at this time and will be a good opportunity for Phu My Fertilizer and Chemicals Company to leap into a new phase of development A financial feasibility study therefore is an essential step in order to confirm where or not investing a new ammonia plant. .. Ammonium Nitrate facilities, and scheduled DAP, SA plants according to Decision No 6868/QD-BCT as well as other industries Thus, if there is not any project for constructing Ammonia manufacturing plant, import will be the main source to supply Ammonia for Vietnam In summary, investment of a new ammonia plant will follow the strategy and master plants of the Government; will contribute to the petroleum... This study also evaluates the financial effectiveness based on financial indicators like IRR, NPV and Pay-back period These results show that the IRR is 30% , NPV is 1.5 billion USD and the total pay-back period is 3 years and 9 months These financial indicators prove that the project of investing an Ammonia plant is financially feasible and beneficial Keywords: financial feasibility study, ammonia plant. .. average cost of capital discount, it is generally agreed that this tool for investment decisions should not be used in isolation II.6.1.4 PI Profitability index (PI), also known as profit investment ratio (PIR) and value investment ratio (VIR), is the ratio of payoff to investment of a proposed project It is a useful tool for ranking projects because it allows you to quantify the amount of value created... Overview about Feasibility Study II.1.1 What is a feasibility study? A feasibility study s main goal is to assess the economic viability of the proposed business The feasibility study needs to answer the question: “Does the idea make economic sense?” The study should provide a thorough analysis of the business opportunity, including a look at all the possible roadblocks that may stand in the way of the cooperative’s... period of time required for the return on an investment to "repay" the sum of the original investment Payback period as a tool of analysis is often used because it is easy to apply and easy to understand for most individuals, regardless of academic training or field of endeavor When used carefully or to compare similar investments, it can be quite useful As a stand-alone tool to compare an investment. .. of Dinh Vu DAP Plant has been a driven factor for the growth of domestic Ammonia demand since 2009 During the period 2005 - 2010, Ammonia demand for MSG production slightly increased with the annual average growth rate (AAGR) of 2%, while that for others almost unchanged Southern market was occupied for 67 % of total domestic demand, followed by Northern market with 33% Figure I.1 Domestic demand of ... on Financial feasibility study of investment of a new ammonia plant for PVFCCo. ” I.3 Rationale Prior to doing a feasibility study for the investment of a new ammonia plant, the necessity of investment. . .FINANCIAL FEASIBILITY STUDY OF INVESTMENT NEW AMMONIA PLANT FOR PVFCCO In Partial Fulfillment of the Requirements of the Degree of MASTER OF BUSINESS ADMINISTRATION... can be costly A feasibility study will help to reduce the risk of making poor decisions and Page increases the chance of success A feasibility study of investment a new ammonia plant is essential