Thông tin tài liệu
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
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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.
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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:
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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
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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.
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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:
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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?
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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
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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.
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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.
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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.
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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.
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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
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