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Opportunities For Creating New Sources Of Livelihoods in Communities Affected by Tsunami in Nagapattinam, India

Opportunities For Creating New Sources Of Livelihoods in Communities Affected by Tsunami in Nagapattinam, India



Opportunities For Creating New Sources Of Livelihoods in Communities Affected by Tsunami in Nagapattinam, India

Opportunities For Creating New Sources Of Livelihoods in Communities Affected by Tsunami in Nagapattinam, India



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    Opportunities For Creating New Sources Of Livelihoods in Communities Affected by Tsunami in Nagapattinam, India  Opportunities For Creating New Sources Of Livelihoods in Communities Affected by Tsunami in Nagapattinam, India Document Transcript

    • Investment opportunities for creating newsources of livelihoods in communities affected byTsunami in Nagapattinam, India1A feasibility study of three options Bellarmine K.C. Kochi/Nagapattinam, INDIA August 20061 This document is not an ESCAP publication. The views expressed in it are the sole responsibilityof the author. This document has not been edited
    • INVESTMENT OPPORTUNITIES FOR CREATING NEW SOURCES OF LIVELIHOODS IN COMMUNITIES AFFECTED BY TSUNAMI TABLE OF CONTENTSPART - I 1. Executive Summary………………………………………………………………………………… 3PART - II 1. Introduction…………………………………………………………………………………………….. 6 2. Feasibility study on Knitted Garment Unit………………………………………………10 3. Feasibility study on Jatropha Cultivation………………………………………………..17 4. Feasibility study on Hygienically Dried Fish Unit…………………………………….29 5. Conclusion………………………………………………………………………………………………..35PART – III List of Annexures1. Annexure 1 a: Garmenting Unit : Cost of Project2. Annexure 1 b : Garmenting Unit : Projected Profitability3. Annexure 1 c : Garmenting Unit : Projected Cash Flows4. Annexure 1 d : Garmenting Unit : Projected Balance Sheets5. Annexure 2 a : Bio diesel – Jatropha Cultivation : Cost of Project6. Annexure 2 b : Bio diesel – Jatropha Cultivation : Projected Profitability7. Annexure 2 c : Bio diesel – Jatropha Cultivation : Projected Cash Flows8. Annexure 2 d : Bio diesel – Jatropha Cultivation : Projected Balance Sheets9. Annexure 3 a : Hygienically Dried-Fish Unit : Cost of Project10. Annexure 3 b : Hygienically Dried-Fish Unit (Model 1 Single Unit): Projected Profitability11. Annexure 3 c : Hygienically Dried-Fish Unit (Model 1 Single Unit): Projected Cash Flows12. Annexure 3 d : Hygienically Dried-Fish Unit (Model 1 Single Unit): Projected Balance Sheets13. Annexure 3 e : Hygienically Dried-Fish Unit (Model 1 Double Unit): Projected Profitability14. Annexure 3 f : Hygienically Dried-Fish Unit (Model 1 Double Unit): Projected Cash Flows15. Annexure 3 g : Hygienically Dried-Fish Unit (Model 1 Double Unit): Projected Balance Sheets16. Annexure 3 h : Hygienically Dried-Fish Unit (Model 2): Projected Profitability17. Annexure 3 i : Hygienically Dried-Fish Unit (Model 2): Projected Cash Flows18. Annexure 3 j : Hygienically Dried-Fish Unit (Model 2): Projected Balance Sheets 2
    • 1. EXECUTIVE SUMMARY Nagapattinam was severely affected by the 2004 tsunami with over 6000deaths coupled with damages and losses estimated at over Rs.25 billion. Postrehabilitation efforts have since seen restoration of most of the damagedproperty. However, restoration of livelihoods primarily focused on employmentgeneration through cash for work programs and other small-scale activities thatlacked the dynamism to generate sustainable long-term income generation.Predominantly fishing dominated areas like Nagapattinam have also seen therehabilitation efforts actually increasing the fishing craft and gear deployment inthe area, increasing the threat of over fishing in the near future. With a view to minimize future economic disruption risks by diversifying thelivelihood patterns, three investment alternatives that have the potential toattract private investment and capable of generating gainful employment to thecommunity members have been identified and their feasibilities studied. As amatter of abundant precaution, the assumptions of profitability have been basedon conservative estimates giving the investment ideas relatively lowerdownsides provided the enterprise is able to deliver the basic operationalparameters. The three investment options examined are as follows:1. Knitted Garmenting Unit: India is expected to be one of the biggest beneficiaries of the post quotaregime and garment exports which have been growing at around 10% in thepast has shown double growth rates post 2005 and the growth rate is expectedto continue at least in the medium term. Tiruppur the main knitted garment-exporting centre in India is currently facing a shortage of trained work force andmanufacturers are exploring alternate locations for setting up garmenting unitsespecially for the manufacture of low end and simple items such as vests, briefs,basic T shirts, etc. One of the positive fallouts of the rehabilitation efforts in Nagapattinam hasbeen the development of a pool of women talent trained in tailoring. Theproposed knitted garmenting unit would utilize this trained talent pool forundertaking Cutting, Making and Trimming (CMT) jobs on per piece basis for themanufacture of basic knitted garments. The unit envisaging an investment of Rs.5.5 million with a capacity of 28seats will produce 0.50 million basic T-shirts per annum. It would provide directemployment to 40 people of which at least 34 can be women. The unit willgenerate a turnover of Rs.4.50 million, an EBIDTA of 1.48 million and pre taxprofits of Rs.0.95 million per annum. The return on capital employed (ROCE) inthe normal year of operation works out to 17%. The IRR for the project worksout to 21% (against a cost of capital of 15%) indicating reasonable strength. Given the social obligations this initiative is attempting to address, it wouldbe prudent to presume that patronage in the form of preferential orders, if notinitiatives to co-promote the venture, could be forthcoming from some largeplayers in the industry. Moreover, as the deliverables are easily quantifiable andgiven that the products targeted are generic items that have more flexibledelivery deadlines, as long as the unit can produce the desired quality, there isno significant risk that the garment manufacturer needs to share. While the key 3
    • challenge would be to develop the talent available at Nagapattinam to deliverminimum acceptable levels, it would be quite a worthwhile effort andexperiment, as there is a huge upside to the whole endeavor.Jatropha Cultivation: India ranks sixth in the world in terms of energy demand accounting for3.5% of world commercial energy in 2001. Currently India imports almost twothirds of its requirement of petroleum products and with the firming up of crudeprices, this has had a significant impact on the country’s economy. India is alsofast emerging as a significant contributor to the world’s carbon emissions and asa signatory to the Kyoto protocol, is looking at various alternative non-conventional and cleaner energy resources such as solar, wind, bio fuels, etc. Ofthe various non-conventional energy sources being pursued, bio fuels – moreparticularly bio diesel - has been identified as having the most potential as far asIndia is concerned. Bio diesel is an eco-friendly, renewable alternative topetroleum diesel prepared from vegetable oils. It is produced by a relativelysimple process of trans-esterification of vegetable oils. It is non-toxic,biodegradable and produces significantly less serious air pollutants when burntas an engine fuel. The Government of India (GoI) has projected a requirementof about 13.38 million tones of bio diesel by 2011-2012. Among the rawmaterials used for bio diesel production, Jatropha have been given focus by theGoI due to its weighted advantages over other sources/species and has drawnup long term plans of Jatropha cultivation over an ambitious 11.19 million ha by2012. Nagapattinam offers immense scope for the cultivation of Jatropha which hasbeen identified as the second alternative investment option. Currently over5000 ha of land is available in the area that can be brought under Jatrophacultivation. The agro climatic conditions prevailing in the area are conducive forJatropha cultivation on a commercial scale. The investment proposal encompasses undertaking Jatropha cultivation on apilot scale over a 100 ha area. Envisaging an investment of Rs.2.5 million, theproject would provide 100 plantation jobs and 30 maintenance jobs. It willproduce 200 tons of jatropha seeds per annum that is equivalent to 65 tons ofbio diesel per annum, an income of Rs.1.20 million per annum and net profit ofRs.0.59 million per annum. An IRR of 22% (against a cost of capital of 14%)indicates inherent viability of the project. The ROCE in the normal year worksout to 25%. The project provides potential for private sector participation byway of buying back the produce as well as to provide extension servicesincluding identification of land and suggestion of appropriate cultivationpractices. Being agro based this initiative is likely to be more adaptable for thecommunity than other industrial options and the perennial nature of Jatrophawould ensure a minimum regular sustenance income to the fishing communitythat is used to vast fluctuations in their income streams.HYGENICALLY-DRIED FISH PRODUCTION UNITS: Commercial fishing though target/species specific, bring in large quantities ofunintended, low value/low quality fishes. Mainly due to lack of adequate andappropriate post harvest solutions, these bountiful catches often do not fetch 4
    • commensurate returns. Nagapattinam being one of the prominent fish landingcenters of Tamil Nadu, lands significant quantities of various commerciallyimportant varieties including anchovies, lesser sardines, white fish, sharks,skates and rays, ribbon fishes, prawns, etc. One of the traditional and costeffective preservation methods being employed by fisherfolk all along the Indiancoast is salting and sun drying. Unfortunately, because of the delay inprocessing and the crude methods (drying in the open) employed, the quality ofthe product is low due to the presence of dust and sand, bacterial contaminationdue to uncontrolled humidity levels during drying, etc. This has resulted in verypoor local, as well as outside market for these products. However, of late smallquantities of quality fish, dried in hygienic conditions without salt, have beengaining acceptance in the markets. This appears to have a promising potential ifthe efforts are coupled with some coordinated raw material procurement andmarketing efforts. Recently, the Central Institute of Fisheries Technology (CIFT) has successfullydeveloped an energy efficient solar drier (with auto backup with LPG heatingduring periods of low sunlight). The model that has been brought out has anormal capacity of drying 1 tons of fish per day (in 8 hours). The third investment alternative envisages setting up a hygienically dried-fishproduction unit. Two operational models have been examined – one wherein theunit functions as a service provider where the fisherfolk can bring in theircatches and gets the same hygienically dried by paying a user fee. This is idealif the fisherfolk cooperatives can undertake the consolidation efforts andarranges for marketing of the dried fish. Under the second model the unit wouldbuy raw fish at market rates, carry out the drying process and then sell thesame under an arrangement with a private participant, either for export or forsale in the domestic market. Estimated to cost Rs.5.5 million for model 1 and Rs.6.0 million for model 2,the unit would process 450 tons of various types of raw fish delivering around112.5 tons of hygienically dried fish. Since the model 2 envisages buying theraw material and subsequent processing and marketing, it is the preferred modeland would earn a total income of Rs.12.60 million, EBIDTA of Rs.1.79 million andpre tax profits of Rs.1.42 million. The IRR for the model 2 works out to 22%indicating adequate project strength. Under the model 2 the private participantwill have the scope to facilitate developing a good market for the product. As anexpansion phase, the community could attempt the model 1 subsequently atvarious locations. 5
    • Chapter 1 INTRODUCTION Nagapattinam, a coastal district of the state of Tamil Nadu in India was oneof the worst affected by the 2004 tsunami. Over 6000 people died, around 800reported missing and over 196,000 were rendered homeless. The damages andlosses were estimated at over Rs.25 billion. Rescue and rehabilitation efforts ledby the Central and State Governments with support from NGO’s, UN agencies,Corporates and the civil society have been quite successful with most of thedamaged property having been now reinstated. However, programs to restorelivelihoods have largely focused on replacing lost or damaged assets,employment generation through cash for work programs/reconstruction, focuson cottage/small-scale activities, etc. These efforts, primarily by virtue of theirad hoc nature, lack the dynamism to generate sustainable long-term incomegeneration. Moreover, places like Nagapattinam that are predominantly fishingdominated areas, have seen the rehabilitation efforts actually increasing thefishing craft and gear deployment in the area, increasing the threat of overfishing in the near future. It has become imperative that communities diversifytheir livelihood patterns to minimize the future risk, particularly economicdisruption. The project “Building Community Resilience to Natural Disasters ThroughPartnerships”, implemented by ESCAP aims to identify self-sustainingalternatives that inter alia have the potential to attract private investment andare capable of generating gainful employment to the community members,especially the poor. Attempts will be made to ensure that the alternatives are,to the extent possible, complementary to the current activities of thecommunities and are in line with the overall developmental programs in theregion. Against the above background, this study had examined in detail severalopportunities and have short listed three feasible options.1.1. OVERVIEW of NAGAPATTINAM The district of Nagapattinam lies on the shores of the Bay of Bengal (betweenNorthern Latitude 10.7906 degrees and Eastern Longitude 79.8428 Degrees). Nagapattinam, an old Port Town that probably derived its name from NavalPattanam (Pattanam = town), as a district, was carved out by bifurcating thecomposite Thanjavur district in 1991 and has traditionally been referred to asEast Thanjavur. Also known as the paddy granary of South India, with paddycultivation in over 150,000 hectares harvesting 3 times a year, the area hasnumerous places of historical importance. The total geographical area of the district is 3536 sq.km. Cropped areaaccounts for about 65.53% of the total area. Forest cover is very minimumaccounting for only about 1.31% of the land. Lands not available for cultivation(including barren/uncultivable land and land put into non-agricultural uses)account for 22.83%. The other uncultivated lands, including permanent 6
    • pastures/other gazing lands, miscellaneous tree crops/groves and cultivablewaste land account for 5.35%. As many as 11 ports and a number of fish landing centers dot the coastline of188 km. The district has a total population of around 1.5 million comprising330,000 in the urban areas and 1.2 million people in the rural areas.1.2. THE ESCAP INITIATIVE The broad objective of the project is to build capacities of Governments tomitigate the impact of natural disasters through community based initiatives thathave the dynamism to generate long term and self sustainable livelihoodpatterns by attracting private sector participation into those initiatives.1.3. INVESTMENT ALTERNATIVES After careful evaluation of a variety of options, three different investmentopportunities that would best serve the project objectives have been identified.The identified options have diverse backgrounds – one is a purely industrialactivity, the second is agro-industry related and the third is fishery based. Option 1. Knitted Garmenting Unit Option 2. Bio diesel : Jatropha cultivation Option 3. Hygienically Dried-Fish Production Unit 7
    • Chapter 2 FEASIBILITY STUDY ON KNITTED GARMENTING UNIT The global garment industry is currently going through an era of institutionalchanges. Consequent to dismantling of quota restrictions in 2005 under theWTO and establishment of Agreement on Textiles and Clothing (ATC), the USD50 billion Indian textile industry, especially its export segment, is poised forexponential growth. Given its strong presence across the entire value chain inthe global textile market, India is expected to be one of the biggest beneficiariesof the ATC. Low cotton costs, cheap and efficient labour, reputed designingskills, flexibility and excellent turnarounds have been some of the key factorsthat have benefited India. Garment exports from India presently account for around USD 7 billion andhave been growing at over 10% since 2002. The growth rate has more thandoubled post 2005 and is expected to be sustained at least in the medium term. Conventionally the garment sector has been viewed as a major source foremployment generation, especially non-agrarian employment, in the rural areas.Unlike other traditional industries, this sector is seen to have more potential togenerate employment opportunities for the rural women, given its semi skillednature. Low capital costs, relatively low technology, moderate skills, poor entrybarriers, etc. have facilitated the garment manufacturers to outsource theirlabour intensive operations to weaker economies quite successfully. Contractmanufacturing of garments perhaps started with the US taking advantage of thelow wage cost in Japan in the 1950’s. Subsequently it moved to other countriessuch as Hong Kong, South Korea, Taiwan, and then to China, Thailand, India,Bangladesh, Sri Lanka, etc. Knitted garments have played a major role in India’s garment exports andTiruppur has contributed significantly. Exports from Tiruppur, which commencedin the early 1980’s, have grown rapidly to the current level of around Rs.70billion. This is despite the industry being largely unorganized - some estimatesindicating the level of organized investments at less than 25%. However, thingsstarted to change as Tiruppur started preparations to capitalize on the wideropportunities in the ATC era, post 2005. Setting up of apparel parks, commoneffluent treatment plants and other infrastructure facilities have been some ofthe initial attempts in this regard. Several of the large players in Tiruppur havealready transformed their enterprises from family run businesses to trueprofessional corporates. This distinct change in the attitude would catalyze moreinstitutional investments including both equity and debt. One of the major challenges Tiruppur is currently facing is a severe shortageof trained labour. While manufacturers of high end products – fashion garments,labeled garments and to some extent merchandised items - have been able toretain the available trained talent, manufacturers of generic and low value itemsare experiencing high turnaround rates as well as an acute shortage of labour.Manufacturers are inter alia exploring alternate locations that are away fromTiruppur for setting up garmenting units especially for the manufacture of lowend and simple items such as vests, briefs, basic T shirts, etc. that do notrequire constant support and coordination from the various ancillary unitslocated in and around Tiruppur. 8
    • An outstanding achievement of the post tsunami rehabilitation efforts carriedout by the various NGO’s at Nagapattinam has been the establishment of a poolof talent trained in tailoring. Initial rough estimates indicate that presently thereare close to 600 trained and currently unemployed women in Nagapattinammaking it an ideal location to set up a small garmenting and finishing unit.2.1. Feasibility Study of the Proposed Garmenting Unit The proposed garmenting unit would undertake CMT (cutting, making andtrimming) jobs on per piece rate basis mainly for the domestic market. Theunit, to start with, will cater only to the low end large volume products such asbasic T shirts, vests and briefs, etc. The unit will also have facilities to finish theproduct as retail packs depending on the client’s requirements so that the outputcan be directly sent to the final markets. Attempts would be made to getpatronage from one or two large players in the industry such as VIP, Dixy, etc.,if not as the private partner for this proposal at least as an outsourcing partnerby way of a long term standing order on a first right of refusal basis.2.2. Project Highlights : Industry : Textiles/Garments Cost : Rs.5.5 million Capacities • No. of seats : 28 • Output (npa) : 0.50 million pieces of basic T shirts Employment generation : Direct : 35 IRR : 21.46% BEP Cash : 34.43% Operating : 46.33% DSCR (average) : 2.83 times ROCE : 17.33% in the normal year of operations2.3. Cost of ProjectThe break up of the cost of project of Rs.5.5 million is given below. More detailsare given in Annexure 1. (‘000 Rupees) Land incl. leveling, fencing, etc. 300 Buildings and civil works 1,200 Sewing machines and other implements 2,240 Misc. fixed assets 1,000 Preoperative/training expenses 400 Contingencies 260 TOTAL CAPITAL COST 5,400 Margin money for working capital 100 TOTAL PROJECT COST 5,500 9
    • 2.3.1. Land: An amount of Rs.0.25 million has been allocated towards cost of land for anextent of 25 cents (0.25 acre = approximately 1012 sq.m.) at the currentlyprevailing rate of Rs.1 million per acre. A lump sum provision of Rs.50,000 hasbeen provided towards leveling and fencing.2.3.2. Buildings: An aggregate of 250 sq.m. of buildings would be required for the unitcomprising a main shed of 200 sq.m. and an ancillary shed of area 50 sq.m.Based on the current construction costs including architect’s fees, a provision ofRs.1.2 million has been provided.2.3.3. Machines: Sewing machine mix provided in the cost of project has been balanced for theproduction of basic T-shirts. Accordingly, provisions have been made for 8Flatlock machines, 16 Interlock machines and 4 Single lock machines. The costof Flatlock, Interlock and Singlelock machines have been assumed at the currentrates of Rs.55,000, Rs.27,000 and Rs.18,000 respectively. Provision of Rs.0.84million has been made towards cost of other accessories including for cutting,pressing and finishing jobs. In case the unit needs to get equipped for undergarments such as vests and briefs, the machine mix will comprise Outer andInner elastic attaching machines, Single needle, Flat lock and Over lockmachines, etc. which could also be acquired without a significant change in thecost.2.3.4. Miscellaneous Fixed Assets: Comprises electrical installations, office and communication equipment andother utilities towards which a provision of Rs.1 million has been provided for inthe cost of project.2.3.5. Preoperative Expenses: Includes establishment expenses (Rs.0.1 million), training costs (Rs.0.2million) and capitalised interest (Rs.0.1 million).2.3.6. Contingency Provision: has been made at 5%.2.3.7. Margin money for working capital: Even though the unit is intended to undertake only job works, a provision ofRs.0.1 million towards essential consumables, mainly as a backup, has beenprovided in the cost of the project.2.4. Means of Financing The above cost of project is proposed to be financed as follows : Equity from the community/Government : Rs.1.925 million Equity from the corporate : Rs.1.925 million Term Loan : Rs.1.650 million 10
    • The above means of financing would result in a leverage of Expected implementation schedule: The identification and acquisition formalities of the land are expected to becompleted by December 2006. Construction of buildings would takeapproximately 3 months and after the acquisition and installation of themachines, the unit is expected to be ready for production by May 2007. After 1months’ of training, the commercial scale operations are expected to commencefrom June 1, 2007.2.6. Private Partnership: The scope of collaboration for the private sector will encompass the three keyaspects of the project viz. finance (as a funding agency), technical inputs (as anoperator) and marketing (as a buyer). Since the three aspects are involved, theproject may need to collaborate with more than one private partner. The role ofthe government may be in the form of allotment of land (in lieu of which thecompany may allot equity shares), exemption/concessions in sales tax/otherlevies, other grants or viability funding to augment the overall viability of theproject, etc. The community participation will be in the form of equitycontribution that would be raised from UNESCAP.2.7. Projected profitability:The main assumptions of profitability are given below:1. No of seats : 282. Normal year of operations : from the 2nd year onwards3. Productivity per seat per 8 hr shift : 71 pieces (based on 1500 pieces per 12 hr shift from a 14 seater standard unit)4. Capacity utilization : 76% (100% capacity utilization would indicate output levels currently prevailing at Tiruppur)5. CMT (incl. packing) rate per piece : Rs.96. Labour cost : Rs.150 per operator per shift7. Salaries : 1 Manager, 3 Supervisors, 2 watchmen, 1 Electrician and 2 Helpers7. Consumables : Rs.0.5 per piece8. Power cost : 9 kVA per seat per hour @ Rs.4 per kWh9. Interest on term loans : 12% p.a.10.Depreciation : SLM11.Corporate Tax : At current rates of 33.6% incl. surcharges and cess. 11
    • Year Ending December 31, 2008 (Rs million) (normal year) No of seats 28 Productivity (No of pieces per seat per shift) 71 No of days in operation per annum 330 Total Output (million no. of pieces) 0.50 Total Income 4.50 Salaries and Wages 1.58 Consumables 0.25 Power and fuel 0.33 Admin. & Misc. expenses 0.85 Total Expenses 3.02 EBIDTA 1.48 Interest on Loans 0.21 Profit Before Tax 0.91 Tax 0.08 Profit After Tax 0.83 Net Cash Accruals 1.19 EBIDTA / Total Income 32.92% PAT / Total Income 18.37% Return On Capital Employed (ROCE) 17.33% BEP – Operating 46.33% BEP – Cash 34.43% Cost of capital (with equity @ 18%) 14.99% Average DSCR 2.83 times IRR 21.46% The efficiency in terms of output has been conservatively estimatedconsidering the challenges involved. The normal output from a 28 seater unit inTiruppur is 3000 npd for a 12 hour shift. Adjusting the latter for an 8 hour shift,(Nagapattinam will have an 8 hour shift to start with) the average productivityworks out to 2000 npd. Against this an output of 0.50 million pieces per annum(1515 npd or around 75% productivity) is conservatively assumed. Sincepacking is also included, the project could comfortably expect to earn a per piecerate of around Rs.10 to Rs.12; however the same has been assumed on aconservative basis at Rs.9 per piece. The EBIDAT margins currently prevailing inthe market for CMT jobs is between 35% and 40% whereas this project hasassumed only 33%. The IRR (with life of the project assumed at 15 years)works out to 21% indicating reasonable project strength. This also comparesfavorably with the cost of capital of 15%. The break even points at 46%(operating) and 34% (cash) indicate comfortable operating parameters. More details on the projected profitability are included in Annexure 1b. Theprojected cash flow statement and the projected balance sheets are included asAnnexure 1c and 1d respectively. 12
    • 2.8. SELLING ARRANGEMENTS: The unit proposes to undertake CMT jobs on a piece rate basis, which is thenormal practice in the industry. The raw materials including grey/dyed fabrics,threads, labels, etc. would be delivered to the unit alongwith deliverables andtime lines. To optimise on logistics, the unit will, in addition to CMT, alsoundertake finishing and packing as per client specifications. The finishedproduct would be offered FOR, Nagapattinam.2.9. SWOT Analysis:Strengths Opportunities• Extensive employment generation • Potential to develop the area into an potential EOU hub• Substantial spill over effects • Scope for developing allied• Modular expansion of capacities backward industries such as dyeing, feasible processing, etc.• Benefits even the poorest of the • High scale up potential poor• Most suited for women folk; men could continue with their existing activities• Capable of attracting a range of investment options to suit the private sector participantWeakness Threats• Ability of the local talent to deliver • Uncontrolled development, acceptable levels of especially of the ancillary and back output/efficiency end processing activities, could lead to pollution issues2.10. CONCLUSION: Tiruppur, backbone of the Indian knitted garment industry, is going through asevere manpower crisis. The latter could not have come at a more inappropriatetime and entrepreneurs are looking at various alternatives to meet thischallenge. Nagapattinam on the other hand is sitting on a pool of trainedunutilized work force and it would seem quite appropriate to synergize theseopportunities. As mentioned earlier the garment industry is known for itsresilience to adopt and absorb agrarian and women talent successfully. Besidesbringing in regular income into the rural household, this initiative wouldempower the fisherwomen of the area by making them economicallyindependent. Given the social obligations this initiative is attempting to address, it wouldbe prudent to presume that patronage in the form of preferential orders, if notinitiatives to co-promote the venture, could be forthcoming from some largeplayers in the industry. Moreover, as the deliverables are easily quantifiable andgiven that the products targeted are generic items that have more flexible 13
    • delivery deadlines, as long as the unit can produce the desired quality, there isno significant risk that the garment manufacturer would need to share. Whilethe key challenge would be to develop the talent available at Nagapattinam todeliver minimum acceptable levels, it would be quite a worthwhile effort andexperiment, as there is a huge upside to the whole endeavor. 14
    • Chapter 3 FEASIBILITY STUDY ON BIO DIESEL – Jatropha cultivation Global demand for fossil fuel is currently rising at more than 2% a year. Inthe past 3 decades, energy use has increased by about 30% in Latin America,40% in Africa and 50% in Asia. Energy demand worldwide is expected to rise by50-60% over the next 20 years. India ranks sixth in the world in terms ofenergy demand accounting for 3.5% of world commercial energy in 2001. Thedemand for petroleum diesel is projected to grow at 5.6% per annum from39.81 million metric tons in 2001-02 to 52.32 million metric tons in 2006-07.Currently India imports almost two thirds of its requirement of petroleumproducts. It has been estimated that crude oil imports would go up to around147 million metric tons (MMT) per annum by the end of 2006-07. With thecurrent firming up of crude prices, this has had a significant impact on thecountry’s economy. In line with the increasing use of fossil fuels, especially by the ever-risingvehicle population, vehicular pollution is estimated to have increased eight timesover the last two decades contributing to about 70% of the total air pollution.India is ranked 5th in the world behind the US, China, Russia and Japan incontribution to world’s carbon emissions and is expected to increase in thecoming years due to rapid increase in urbanization. As a signatory to the Kyotoprotocol, India is also looking at various alternative non-conventional energyresources such as solar, wind, bio fuels, etc. These alternatives besidesproviding another energy resource would also enable the country to meet itsemission obligations as well as profitably trade through accruals of carboncredits – India has set an ambitious target of earning Euro 2.5 billion throughcarbon trading in the medium term. Of the various non-conventional energysources being pursued, bio fuels – more particularly bio diesel - has beenidentified as having the most potential as far as India is concerned.3.1. What is Bio diesel? Bio diesel is an eco-friendly, renewable alternative to petroleum dieselprepared from vegetable oils - mainly non-edible vegetable oil. It is non-toxic,biodegradable and produces significantly less serious air pollutants such asparticulates, carbon monoxide, hydrocarbons and other air toxics when burnt asan engine fuel. Blends of 20% bio diesel with 80% petroleum diesel (commonlyreferred to as B20) can generally be used in unmodified diesel engines. It canalso be used in its pure form (B100), with minimal engine modifications.3.2. Bio diesel as fuel: Bio diesel has been registered as a fuel and fuel additive with theEnvironmental Protection Agency (EPA) and meets the clean fuel standardsestablished by several agencies. Neat (100 percent – B100) bio diesel has beendesignated as an alternative fuel by the Department of Energy of the UnitedStates and the US Department of Transportation. It is the only alternative fuelto have fully completed satisfactorily the health effects requirements of theClean Air Act. The National Bio diesel Board of the United States has estimated asales volume of 75 million gallons for the year 2005. 15
    • 3.3. Bio diesel is eco friendly: Bio diesel is the first and only alternative fuel to have a complete evaluationof emission results and potential health effects submitted to the U.S.Environmental Protection Agency (EPA) under the Clean Air Act. These programsinclude the most stringent emissions testing protocols ever required by EPA forcertification of fuels or fuel additives. The use of bio diesel in compression engines decreases the emission of solidcarbon fraction of particulate matter (since the oxygen in bio diesel enablesmore complete combustion to CO2) and reduces the sulfate fraction (bio dieselcontains less than 15 ppm sulfur), while the soluble or hydrocarbon fractionstays the same. Therefore, bio diesel works well with emission controltechnologies such as diesel oxidation catalysts (which reduce the soluble fractionof diesel particulate but not the solid carbon fraction). Of the major exhaust pollutants, both unburnt hydrocarbons and nitrogenoxides are ozone or smog forming precursors. The use of bio diesel results in asubstantial reduction of unburned hydrocarbons. Emissions of nitrogen oxidesare either slightly reduced or slightly increased depending on the duty cycle ofthe engine. Consequently the overall ozone forming potential of the hydrocarbonemissions from bio diesel is nearly 50 percent less than that measured forpetroleum diesel. The exhaust emissions of carbon monoxide (a poisonous gas) from bio dieselare also on average 48 percent lower than those from diesel. Bio diesel emissions also show significantly decreased levels of polycyclicaromatic hydrocarbons and nitrated polycyclic aromatic hydrocarbons, which areconsidered to be the most potential cancer causing compounds.3.4. Properties of Bio DieselThe properties of bio diesel are very similar to that of conventional diesel andare given below. Specific gravity 0.87 to 0.89 Kinematic viscosity @ 40°C 3.7 to 5.8 Flash Point 130oC Cetane number 46 to 70 Higher heating value (btu/lb) 16,928 to 17,996 Sulfur, wt% 0.0 to 0.0024 Cloud point °C -11 to 16 Pour point °C -15 to 13 Iodine number 60 to 135 Lower heating value (btu/lb) 15,700 to 16,7353.5. Demand for Bio dieselThe Committee for development of Bio fuels, constituted by the PlanningCommission, GoI has projected a requirement of about 13.38 million tones of biodiesel by 2011-2012 as follows: 16
    • Year Diesel Bio- Area for Bio- Area for Bio- Area for Demand Diesel 5% Diesel 10% Diesel 20% MMT @ 5% Mha @ 10% Mha @ 20% Mha MMT MMT MMT 2001-02 39.81 1.99 N.A. 3.98 N.A. 7.96 N.A. 2006-07 52.33 2.62 2.19 5.23 4.38 10.47 8.76 2011-12 66.90 3.35 2.79 6.69 5.58 13.38 11.193.6 Relevance of Jatropha Among the raw materials used for bio diesel production Sunflower, Rapeseed,Soyabean, oil Palm, Jatropha and Pongamia are the most prominent. Indiabeing deficit in edible vegetable oils cannot afford to divert the edible oil to biodiesel production. Therefore, the use of Tree Borne Oil Seeds (TBOS) of non-edible nature has been identified as the best alternative. Though there are more than 100 species of TBOS, the prominent amongthem are Neem, Mahua, Sal, Kamala, Rubber, Jatropha, Pongamia, Salvadoraand Jojoba. Out of these, Jatropha have been given focus by the GoI due to itsweighted advantages over other sources/species and has drawn up long termplans of Jatropha plantation over 2.19 to 11.19 million ha from 2006-07 to2011-12 for blending of 5% to 20%.3.7. Advantages of Jatropha:• Jatropha is a widely occurring plant variety• The plant can survive on almost any soil type viz., degraded and barren lands under forest and non-forest use, dry and drought prone areas, marginal lands and as agro forestry crop.• It is drought resistant and needs minimal inputs or management. Moderate irrigation is required only in the initial 2 years• It improves soil fertility, restores degraded land over a period, and controls wind and water erosions.• The plant being a hedge does not grow too tall making it convenient to grow on field boundaries, alongside railways, highways, irrigation canals, townships etc.• Jatropha is easy to propagate and its growth is rapid.• Practically disease and pest resistant, cattle or sheep do not browse it.• Commercial yield of seeds start from second year onwards and continues for over 30 years.• Collection of seeds is easy because of the short stature of the plant.• The seeds are available mainly during the non-rainy season facilitating better and easy collection and processing.• Integrated utilization of the Jatropha plant based systems is a boon for rural development and creates a positive correlation between energy production, food production and poverty reduction.• Fruit bearing for more than 6 months in a year• The seeds have oil contents of up to 40%. Improved seeds that yield significantly more oil (up to 150% of normal values) are now available. 17
    • Jatropha also has the following additional uses:• Jatropha oil has a very high saponification value and is ideal for soap manufacture. Soap manufactured from non-petroleum sources is gaining increasing popularity especially in the European countries.• It can also be used as an illuminant in lamps as it burns without emitting smoke• The latex of Jatropha contains jatrophine, an alkaloid which is believed to have anti-cancerous properties. It is also used as an external applicant for skin diseases, rheumatism, livestock sores, piles and as an antidote for certain snake-bites• The dark blue dye extracted from the bark of Jatropha is a useful dye.• Jatropha oil cake is rich in nitrogen, phosphorous and potassium and can be used as organic manure.• Jatropha leaves are used as food for the tusser silkworm.• The seeds are considered anti helmintic in Brazil, and the leaves are used for fumigating houses against bed bugs. In addition, the ether extract shows antibacterial properties against Staphylococcus aureus and Escherichia coli.3.8. Botanical features of JatrophaFamily: EuphorbiaceaeVernacular/common names:English Physic nut, Purging nut Hindi Ratanjyot Jangli erandiMalayalam Katamanak Tamil KattamanakkuTelugu Pepalam Kannada KadaharaluGujarathi Jepal Sanskrit Kanana randaPhysical properties: It is a small tree or shrub with smooth gray bark, which exudes whitishcolored, watery, latex when cut. Normally, it grows between three and fivemeters in height, but can attain a height of up to eight or ten meters underfavorable conditions.Leaves: It has large green to pale-green leaves, alternate to sub-opposite, three-tofive-lobed with a spiral phyllotaxis.Flowers: The petiole length ranges between 6-23 mm. The inflorescence is formed inthe leaf axil. Flowers are formed terminally, individually, with female flowersusually slightly larger and occurs in the hot seasons. In conditions wherecontinuous growth occurs, an unbalance of pistillate or staminate flowerproduction results in a higher number of female flowers.Fruits: Fruits are produced in winter when the shrub is leafless, or it may produceseveral crops during the year if soil moisture is good and temperatures aresufficiently high. Each inflorescence yields a bunch of approximately 10 or more 18
    • ovoid fruits. A three, bi-valved cocci is formed after the seeds mature and thefleshy exocarp dries.Seeds: The seeds become mature when the capsule changes from green to yellow,after two to four monthsFlowering and fruiting habit: The trees are deciduous, shedding the leaves in the dry season. Floweringoccurs during the wet season and two flowering peaks are often seen. Inpermanently humid regions, flowering occurs throughout the year. The seedsmature about three months after flowering. Early growth is fast and with goodrainfall conditions nursery plants may bear fruits after the first rainy season,direct sown plants after the second rainy season. The flowers are pollinated byinsects especially honey bees.3.9. Ecological requirements: Jatropha grows almost anywhere, even on gravelly, sandy and saline soils. Itcan thrive on the poorest stony soil. It can grow even in the crevices of rocks.The leaves shed during the winter months and forms mulch around the base ofthe plant. The organic matter from shed leaves enhance earthworm activity inthe soil around the root-zone of the plants, which improves the fertility of thesoil. Jatropha is found in the tropics and subtropics and likes heat, although itdoes well even in lower temperatures and can withstand a light frost. Its waterrequirement is extremely low and it can stand long periods of drought byshedding most of its leaves to reduce transpiration loss. Jatropha is also suitablefor preventing soil erosion and shifting of sand dunes.3.10. Biophysical limits:Altitude: 0-500 m, Mean annual temperature: 20-28 deg. C,Mean annual rainfall: 300-1000 mm or more.Soil type: Grows on well-drained soils with good aeration and is well adapted tomarginal soils with low nutrient content. On heavy soils, root formation isreduced.3.11. AGRO PRACTICES (as per NOVOD, Ministry of Agriculture, GOI):Nursery raising: Nurseries may be raised in poly-bags filled with mixture of soil and farm yardmanure in the ratio of 4:1. Two seeds are sown in each bag.Plantation: 30 cm x 30 cm x 30 cm pits are dug. Farmyard manure (2-3 kg), 20 gmurea, 12 gm Single Super Phosphate (SSP) & 16 gm Mono Phosphate (MP) 19
    • Planting density: 2500 plants / ha at 2m x 2mTransplantation: It should be done preferably during rainy reason.Fertilizer : From second year in the ratio of 40:60:20 Nitrogen Phosphorous andPotassium (NPK) kg/haIrrigation : It is required only for the first two yearsPruning : During the first year when branches reach a height of 40-60 cmsPest & Disease control: No disease or insects noticed to be harmfulFlowering: Sept.- Dec. & March- AprilFruiting: After 2 months of flowering.Collection and processing: Ripe fruits collected from trees.3.12. Employment potential estimates: (as per Planning Commission, GoI, report on bio-fuels, 2003) • Likely demand of petroleum diesel by 2006-07 will be 52 MMT and by 2011-12 it will increase to 67 MMT. • 5% blend of Bio-diesel with petroleum diesel will require 2.6 MMT of Bio- diesel in 2006-07 • By 2011-12, for 20% blend with petroleum diesel, the likely demand will be 13.4 MMT. • To meet the requirement of 2.6 MMT of bio-diesel, plantation of Jatropha should be done on 2.2 - 2.6 million ha area. • 11.2 - 13.4 million ha of land should be covered by 2011 - 12 for 20% bio-diesel blending • It will generate following no. of jobs in following areas. Year Plantation Jobs Maintenance Operation of BD units 2006 – 07 2.5 million 0.75 million 0.10 million 2011 – 12 13.0 million 3.9 million 0.30 million3.13. TRANS ESTERIFICATION: The process of converting the triglycerides (fatty acids) in the vegetable oilinto methyl or ethyl esters (the methyl/ethyl ester is bio diesel) is called transesterification. Chemically, trans esterification involves taking a triglyceridemolecule or a complex fatty acid molecule, neutralizing its free fatty acids,removing the glycerol component and creating an alcohol ester or bio diesel. If 100 gm of vegetable oil is taken, 1 gm of the alkaline catalyst (PotassiumHydroxide), and 12 gm of Methanol would be required. As a first step, thealkaline catalyst is mixed with methanol and the mixture is stirred for half anhour for its homogenization. This mixture is mixed with vegetable oil and theresultant mixture is made to pass through reflux condensation at 65oC. Themixture at the end is allowed to settle. The lower layer will be of glycerin and it 20
    • is drained off. The yield of glycerin (a by-product having medicinal value) isabout 11%. The upper layer of bio-diesel (a methyl ester) is washed to removeentrained glycerin. The excess methanol is recycled by distillation. This reactionworks well with high quality oil. If the oil contains up to 1% Free Fatty Acid(FFA), then difficulty arises because of soap formation. If FFA content is morethan 2% the reaction becomes unworkable and the FFA will have to be removedor transformed into bio diesel using special pretreatment technologies. Methanolis inflammable and Potassium Hydroxide is caustic, hence proper and safehandling of these chemicals is a must. The bio diesel yield is 95%.3.14. Current usage of bio diesel: Usages of bio-diesel are similar to that of petro-diesel • Shatabadi Express of the India Railways was successfully run on 5% blend of bio-diesel from Delhi to Amritsar on 31st December 2002 in association with Indian Oil Corporation (IOC) • Field trials of 10% bio-diesel blend were also done on Lucknow-Allahabad Jan Shatabdi Express also through association with IOC. • HPCL is also carrying out field trials in association with BEST (Mumbai’s city bus operator) • Bio-Diesel blend from IOC (R&D) is being used in buses in Mumbai as well as in Rewari, in Haryana on trial basis • CSIR and Daimler Chrysler have jointly undertaken a successful 5000 km trial run of Mercedes cars using bio-diesel as fuel • NOVOD has initiated test run by blending 10% bio diesel in collaboration with IIT, Delhi in Tata Sumo & Swaraj Mazda vehicles The Government of India is aggressively pushing cultivation in the variousstates. In Tamil Nadu an area of 60 ha has already been identified for pilot scaleJatropha cultivation by the NOVODB.3.15. Feasibility study on Jatropha cultivation in Nagapattinam: Nagapattinam offers immense scope for the cultivation of Jatropha.Currently over 5000 ha of land is available in the area that can be brought underJatropha cultivation. The agro climatic conditions prevailing in the area areconducive for Jatropha cultivation on a commercial scale. A feasibility analysis of Jatropha cultivation on a pilot scale over a 100 haarea has been attempted and is detailed below. Since the primary focus hasbeen given to the cultivation part, the project has assumed that the jatropha oilwould be its final output.3.13. Project Highlights: Industry : Agriculture/Non Conventional Energy Cost : Rs.2.5 million Capacities • Area : 100 ha • Output (in normal year) : 200 tons of jatropha seeds per annum equivalent to 65 tons of bio diesel p.a. Employment generation : 100 plantation jobs 21
    • 30 maintenance jobs Income generation : Rs.1.2 million per annum in normal year IRR : 22.46% DSCR (average) : 2.33 times ROCE : 25.38% in the normal year of operations3.17. Cost of the Project: The proposal envisages setting up jatropha cultivation over an area of 100 haon a pilot basis at a total cost of Rs.2.5 million. As indicated earlier, Jatropha cultivation is a focus area and variousGovernments have been heavily subsidizing the farmers who undertake itscultivation by giving them as much as 90% of the cost of all inputs. Certainstate Governments have also leased out idle Government lands to privatecompanies for Jatropha cultivation on long-term basis. Given the vastavailability of Government land suitable for Jatropha cultivation atNagapattinam, it is proposed to undertake the cultivation on Government landmade available to the project at nominal rates on long term basis. Moreover, inview of the returns from Jatropha cultivation being comparatively lower thanother crops, acquiring land on commercial rates for undertaking this venturemay not be viable. Therefore no cost has been assumed towards cost of land inthe project cost. The details of cost of project are given below. Replanting costswhich happen through the second year, weeding and irrigation expenses throughthe third year have been capitalised in pre operative expenses. (‘000 Rupees) Year 1 Year 2 Year 3 TOTAL Site preparation 84 84 Initial ploughing 90 90 Alignment and staking 49 49 Digging and refilling of pits 308 308 Cost of fertilizers 270 270 Cost of plants and planting expenses 323 33 356 Weeding and irrigation 350 350 350 1,050 Pre operative expenses 200 200 Contingencies 93 93 TOTAL 1,767 383 350 2,5003.17.1. Site preparation and initial ploughing: Labour costs required for site preparation including leveling, etc. have beenassumed at 12 man-days per hectare. Cost of labour has been assumed basedon the current levels at Rs.70 per man-day. Initial ploughing costs have beenassumed at the rate of 6 hours per hectare at Rs.150 per hour or Rs.900 per ha.3.17.2. Alignment and staking: at the rate of 7 man-days per ha.3.17.3. Digging and refilling of pits: Planting density has been assumed at 1100 trees to get, on a conservativebasis, fruiting from 1000 trees. At the rate of 25 pits per man-day therequirement of total man days for digging and refilling has been worked out at4,400 man days. 22
    • 3.17.4. Initial fertilizing: Requirement of organic manure, chemical fertilizers and insecticides havebeen assumed at 2 kg, 100 gm and 30 gm respectively per pit. Based on thecurrent prices for fertilizers the rates have been assumed at Rs.2 per kg, Rs.10per kg and Rs.15 per kg for organic manure, chemical fertilizers and insecticidesrespectively.3.17.5. Cost of plants and planting expenses: Cost of seedlings has been assumed at Rs.2 per plant and 75 plantings perman-day. Around 10% replanting will be required in the second year.3.17.6. Weeding and irrigation expenses: 30 man-days per ha for weeding and 20 man days per ha for initial irrigationhave been assumed. Both weeding and irrigation expenses will be required forthe initial 3 years and have been accordingly provided in the cost of the project.3.17.7. Pre operative expenses: A lump sum amount of Rs.200,000 has been provided in the cost of theproject towards pre operative expenses.3.17.8. Contingency: Provision for contingencies has been provided at 5%.3.18. Means of Financing: The above cost of project is proposed to be financed as follows: Equity from the community : Rs.1.25 million Term Loan : Rs.1.25 million3.18.1. Term Loan: Being a priority sector enterprise, the project will easily be able to raise aterm debt. Even though the project would also qualify for a capital subsidy fromthe government, the same has not been assumed in the means of financing. Inthe event the capital subsidy becomes available, the term debt component wouldbe correspondingly reduced. More details on the cost of project are included in Annexure 2a.3.19. Expected implementation schedule: It has been assumed that the entire 100 ha of land shall be planted by June2007.3.20. Private Partnership: The scope of collaboration for the private sector will primarily encompassbuying back the produce as well as to provide extension services including 23
    • identification of land and suggestion of appropriate cultivation practices. VariousGovernment agencies are also keenly promoting Jatropha cultivation and thisproject could expect significant support from these agencies. Their role wouldneed to be structured based on the scope of their participation in the project.An indicative interest for collaborating with this initiative has been received froma corporate that is currently setting up a bio diesel plant of capacity 100,000tons per annum envisaging an investment of USD 31 million. They have offeredto provide assistance in identifying the land for the proposed pilot project,suggest appropriate cultivation practices and arrange for a buy back of theproduce on mutually agreeable long term basis.3.21. Projected profitability: The main assumptions for working out the profitability of the proposedJatropha cultivation are given below : 1. Cultivated area : 100 ha 2. Normal year of operations : from the 4th year onwards 3. Yield (seeds per ha) : 2 tons in the normal year 4. Sale price of seeds : Rs.6.00 (based on sale of oil) 5. Planting costs (Labour) : 150 man-days per ha 6. Harvesting and pruning costs : 50 man-days per ha 7. Cost per man-day : Rs.70 8. Interest on term loans : 12% p.a. 9. Depreciation : SLM 10.Corporate Tax : Nil Year Ending December 31, 2010 (normal year) (Rs million) Cultivated area (hectares) 100 No of fruiting trees per hectare 1,000 Yield (kg of seeds per fruiting tree) 2.00 Total Output (tons seeds) 200 Total Income 1.20 Weeding costs 0.14 Irrigation costs 0.11 Harvesting and irrigation costs 0.14 Admin. & Misc. expenses 0.06 Total Expenses 0.45 EBIDTA 0.76 Interest on Loans 0.17 Year ending December 31, 2010 (normal year) (Rs. millions) Profit After Tax 0.59 Net Cash Accruals 0.59 EBIDTA / Total Income 62.92% PAT / Total Income 48.89% Return On Capital Employed (ROCE) 25.38% Average DSCR 2.33 times IRR 22.46% 24
    • The main assumptions of profitability have been based on the data andpractices recommended by NOVOD and NABARD. Certain parameters have beenadjusted for the local conditions. Even though the project will be able tonegotiate a subsidized rate of interest being in the priority sector, interest ratefor the proposed term loan has been calculated at 12%. The average DSCR of2.33 times would ensure prompt servicing of the availed term loan. The IRR forthe project (with life of project at 15 years) of 22.46% compares favourably withthe cost of capital of 14.21%. More details on the projected profitability is included in Annexure 2b. Theprojected cash flow statement and the projected balance sheets are included asAnnexure 2c and 2d respectively.3.22. SELLING ARRANGEMENTS: The Jatropha seeds have a comparatively longer shelf life as compared toother popular oil sources like oil palm, etc. This renders them capable of beingtransported for reasonable distances for post harvest processing. The oil fromthe seeds may be extracted either by oil expellers or through the solventextraction process. Currently there is a huge idle capacity in the oil extractionindustry in India. NABARD has estimated following capacities and utilisationlevels in India: Segment Number of Total Installed Capacity Capacity Units (million tons) Utilisation Mechanical Crushers 152,000 55.0 29% Solvent Extractors 421 26.7 34% As per current industry practices, especially in rural areas, the seeds are soldthrough traders to the oil expellers at prices adjusted to the oil content andprevailing Jatropha oil prices. Oil recovery of upto 75% happens at theexpellers; the expellers subsequently sell the oil cake to solvent extraction unitswhere the oil recovery of upto 90% happens. Given the availability of spare capacity for oil expelling, it is ideal that thatthe project would sell Jatropha oil as its final output. Towards this, it would tieup with a nearby oil-expelling unit having adequate capacity to process theharvested seeds. The unit would also enter into a long-term arrangement with alarge bio diesel manufacturer for the sale of Jatropha oil on FOR (Nagapattinam)basis.3.23. SWOT analysis:Strengths Opportunities • Jatropha cultivation is already in • Potential for scale up of operations vogue in the state of Tamil Nadu bright • Climatic conditions quite conducive • Capable of implementation in other for its cultivation areas • Hardy crop requiring little or no • Intercropping with other extension services commercially valuable crops • Low gestation periods possible • Identification of private sector partners for the PPP easy • Good employment potential 25
    • Weakness Threats• Moderate labour generation • May invade into other more potential valuable crops currently in vogue• Scattered land holdings may hamper large scale cultivation6.24. CONCLUSION:Bio fuels – especially bio diesels - are fast emerging to become one of the moreviable, sustainable and cleaner options for meeting the ever increasing energydemand. Emerging economies such as India with its vast wastelands andtropical climate can benefit immensely from these renewable energy resources.The GoI has identified Jatropha cultivation as a thrust area and have initiatedseveral projects to capitalize on this vast potential – Tamil Nadu has beenchosen as one of the priority states by the GoI in this regard. NABARD hasassessed a credit need of over Rs.3.00 billion for Jatropha cultivation and isaggressively pushing agriculture loans for Jatropha cultivation. Besides fruitfullyutilizing the lands available at Nagapattinam, this alternative will also serve as amicro mission to the GoI’s initiative to develop bio fuel alternatives. Being agrobased this initiative is likely to be more adaptable for the community than otherindustrial options. Being a perennial crop Jatropha would to some extent ensurea minimum regular sustenance income to the fishing community that is used tovast fluctuations in their income streams. 26
    • Chapter 4 HYGENICALLY-DRIED FISH PRODUCTION UNITS Most of modern day fishing is target/species specific. Yet, they bring in largequantities of unintended, low value/low quality fishes. The sheer quantity ofsuch fish currently being landed merits more attention, because betterpreservation, value addition and proper marketing can bring in considerableadditional income to the fisher folk. Besides, there are several species –especially those smaller varieties - which are normally harvested in bulk duringcertain seasons, often leading to a glut in the market. Mainly due to lack ofadequate and appropriate post harvest solutions, these bountiful catches oftendo not offer commensurate returns. One of the traditional and cost effective methods being employed by fisherfolk all along the Indian coast is salting and sun-drying. Unfortunately, becauseof the delay in processing and the crude methods (drying in the open) employed,the quality of the product is abysmally low mainly due to the presence of dustand sand, bacterial contamination due to uncontrolled humidity levels duringdrying, even faecal contamination, etc. This has resulted in very poor local, aswell as outside market for these products. However, of late small quantities ofquality fish, dried in hygienic conditions, have been gaining acceptance in themarkets. This appears to have a promising potential if the efforts are coupledwith some coordinated raw material procurement and marketing efforts. Past attempts at developing a suitable method for the large-scale productionof quality dried fish have been unsuccessful due to lack of a suitable andpractical technology. Attempts at producing good quality dried fish using tunneldriers also did not gain popularity on account of the prohibitive cost of tunneldriers. Recently, the Central Institute of Fisheries Technology (CIFT) has successfullydeveloped an energy efficient solar drier (with auto backup with LPG heatingduring periods of low sunlight). The model that has been brought out has anormal capacity of drying 1 tons of fish per day (8 hours). The unit is successfulin drying vegetables also – when the capacity almost doubles. Since theequipment is currently going through the process of getting patent rights, thedetails of the equipment is not discussed.4.1. Feasibility Study on Hygienically Dried-Fish Unit: Nagapattinam is one of the prominent fish landing centers of Tamil Nadu.Significant quantities of various commercially important varieties including thosethat are ideally suited for drying are available here almost throughout the year.The latter include several commercially important varieties such as anchovies,lesser sardines, white fish, sharks, skates and rays, ribbon fishes, prawns, etc. The project envisages setting up a solar drying unit having a capacity of 1 tonper day for the manufacture of hygienically dried fish. The unit will also havefacilities to store raw fish for upto 5 days to achieve good capacity utilizations.Two models have been examined: 27
    • Model 1: The unit will operate as an independent drying unit where the users can pay and use the facility Model 2: The unit would buy the raw fish at market rates, process it and then sell the same under an arrangement with a private participant.It is recommended that the project be implemented under the Model 2 as itwould best serve to fulfill the overall objectives of the ESCAP initiative.4.2. Project highlights: Industry : Fishery – fish processing Cost : Rs.6.0 million Installed capacity : 600 tpa of raw fish Employment generation : 12 direct Income : Rs.12.6 million IRR : 23.95% BEP Operating : 23.62% Cash : 19.58% ROCE (normal year) : 16.98%4.3. Cost of the Project: As mentioned earlier, Model 2 is the recommended option. However, the costdetails of both the models are given below: (Rs. in 000’s) Single Double drying unit drying unit Land and development 300 300 Buildings and civil works 900 1150 Plant and machinery 1750 3300 Misc. fixed assets 250 300 Preoperative expenses 100 150 Contingencies 200 300 Margin money for WC 300 500 TOTAL (Model 1) 3500 5500 TOTAL (Model 2) 3800 60004.3.1. Land: An amount of Rs.0.25 million has been allocated towards cost of land for anextent of 25 cents (0.25 acre) at the currently prevailing rate of Rs.1 million peracre. A lump sum provision of Rs.50,000 has been provided towards levelingand fencing.4.3.2. Buildings: Foundation space for has been provided at 25 sq.m. and 50 sq.m.respectively for the single and double unit alternatives. Raw fish storage area of150 sq.m. and 200 m has been provided at a cost of Rs.4500 per sq.m. A 100sq.m area has been provided towards reception, sorting and washing area. 28
    • 4.3.3. Plant and Machinery: The main drying unit having a capacity of 1 tons per day is estimated to costRs.1.5 million. The cost of other implements including cleaning and accessorieshas been estimated at Rs.0.25 million for the single unit and Rs.0.30 for thedouble unit.4.3.4. Miscellaneous Fixed Assets: Would comprise facilities for water and utilities, waste disposal, etc. towardswhich lump sum provisions have been made at Rs.0.25 million and Rs.0.30million respectively for the single and double units.4.3.5. Preoperative Expenses: Lump sum amounts of Rs.0.10 million and Rs.0.15 million respectively havebeen provided for the single and double units.4.3.6. Contingency Provision: has been made at 5%.4.3.7. Margin money for working capital: Implementing the project under the Model 2 would involve payment for rawmaterial purchases. With a view to eliminate middlemen it is imperative that onthe spot cash payments are made by the unit for purchase of raw materials.This would also enable the unit to procure raw materials at the most optimumrates. Towards the above a provision to the extent of around 7 days’requirement of raw materials has been made in the cost of the project.4.4. Means of Financing: The cost of the project is proposed to be financed entirely out of equity.Given that the main equipment viz. the solar fish drier is more in the nature ofcustomized item, it is possible that prospective lenders may perceive the sameto be an illiquid security and insist on additional assets as collateral to cover theloan. However, in case a term loan is possible, mainly based on the credentialsof the private participant, the equity contribution will accordingly be adjusted prorata. Equity from the Corporate/Government : 50% Equity from the Community : 50%4.5. Expected implementation schedule: The identification and acquisition formalities of the land are expected to becompleted by December 2006. Construction of buildings would takeapproximately 3 months and after the acquisition and installation of themachines, the unit is expected to be ready for production by June 2007. 29
    • 4.6. Private Partnership: The project implementation has been examined under two alternatives –Model 1 : as a service provider offering drying services on payment of a userfee and Model 2 : as a full fledged manufacturer of hygienically dried fish. Model1 could accommodate the participation of the private sector mainly as a fundingagency. For Model 2 the scope of collaboration for the private sector willencompass marketing (as a buyer) and finance (as a funding agency). Idealprivate sector company for the partnership could be a seafood exporter who isprimarily exporting to the gulf countries having a significant south Indianexpatriate population or a local food chain store such as Nilgris SupermarketStores, Spencers, etc. for sales into the domestic market. The role of thegovernment may be in the form of allotment of land (in lieu of which thecompany may allot equity shares), exemption/concessions in sales tax/otherlevies, other grants or viability funding to augment the overall viability of theproject, etc. Other government agencies like the Marine Products ExportDevelopment Authority (MPEDA) may also be interested in participating in thisproject.4.7. Projected Profitability: The main assumptions of profitability are given below: 1. Drying mix: 60% by solar drying and 40% with LPG. A higher LPG usage is assumed so as achieve higher capacity utilization levels 2. Capacity utilization: 75% 3. Cost of LPG: Rs.40 per kg. 4. LPG consumption:14 kg per ton of raw fish 5. Drying time: 5 hrs for 1 ton with LPG and 8 hr with solar energy 6. Consumables includes, detergents, disinfectants, etc. have been assumed at Re.0.25 per kg of raw fish 7. Packing costs (including packing materials under Model 2) have been assumed at Rs.9.75 per kg of dried fish 8. Drying charges have been assumed at Rs.4 for solar drying and at Rs.4.75 for LPG drying 9. Power, water and fuel charges have been assumed at Rs.5000 per month 10.Average cost of raw fish based on a basket of varieties have been assumed at Rs.20 per kg 11.Average moisture content in fish has been assumed at 70 - 75% 12.Value addition for hygienically dried fish retail packed has been conservatively assumed at 140% 13.Depreciation has been assumed on SLM basis 14.Corporate tax has been charged at 33.6% including surcharges 30
    • (Rs million) Model 1 Model 1 Single Double Year Ending December 31, 2008 Unit Unit Model 2 Installed capacity (tpa of raw fish) 300 600 600 Output (tpa of dried fish) 56.2 112.5 112.5 Capacity Utilisation (%) 75% 75% 75% Drying charges (Rs.per kg.) 4.00/4.75 4.00/4.75 - Total Income 0.97 1.94 12.60 Cost of raw fish - - 9.00 Salaries and Wages 0.11 0.17 0.32 Consumables & packing materials 0.06 0.11 1.13 Power and fuel 0.08 0.16 0.16 Admin. & Misc. expenses 0.02 0.02 0.20 Total Expenses 0.27 0.47 10.81 EBIDTA 0.70 1.47 1.79 Profit Before Tax 0.52 1.29 1.42 Tax 0.05 0.31 0.42 Profit After Tax 0.48 0.98 1.01 Net Cash Accruals 0.65 1.16 1.37 EBIDTA / Total Income 72.03% 75.85% 14.21% PAT / Total Income 49.22% 50.90% 7.99% ROCE (Return On Capital Employed) 12.05% 15.31% 14.53% BEP – Operating 27.89% 16.65% 23.62% BEP – Cash 12.10% 8.76% 6.48% Cost of capital (with equity @ 18%) 18.00% 18.00% 18.00% IRR 14.59% 19.70% 22.39% The single unit scenario under Model1 appears unviable as the unit will haveto levy a very high drying charge for sustenance. Even at drying rates ofRs.4/Rs.4.75 per kg, the IRR is only 14.59% for the single unit as against an IRRof 19.70% for the double unit. Considering the role the private sector is expected to play in the proposedinitiative, it is the Model 2 that offers more scope to the private participant. Thekey financial parameters for the Model 2 also appears satisfactory and on theoverall Model 2 is recommended.4.8. PRODUCTION and SELLING ARRANGEMENTS Under Model 1, the unit would function merely as a service point offeringdrying services to interested parties. Fisher folk cooperatives, for example,could take the initiative to coordinate the catches and arrange for the drying andsubsequent sale of the dried product. Under Model 2 the unit would have active participation from an interestedexisting private company. The latter would clearly indicate its preferences as tothe varieties as well as the price ranges based on which the unit would purchasethe varieties directly from the fishing community at the prevailing market prices 31
    • (or at levels lower than the indicated maximum prices) on cash and carry basis.The processed (dried) fish is converted into retail packs as per buyerspecifications and offered FOR.4.9. SWOT ANALYSISStrengths Opportunities • Easily adaptable to the communities • Can be implemented in other as it is an extension of their existing coastal areas activities • Significant untapped demand for • Better utilization of the existing quality dried fish products both in resources the domestic and export markets • Scope for modular expansion of capacities • Easily replicable to other locations • Adaptable to include other non fish items, such as vegetables • Environmentally friendly operationsWeakness Threats • Corporate role largely restricted to • May encourage over fishing marketing efforts • Manufacturing and marketing distinctly different cultures • Procuring quality raw materials and maintaining quality standards may be challenging4.10. CONCLUSION Lack of adequate post harvest facilities have been one of the biggestchallenges faced by the seafood industry. Except for the seafood that isexported – primarily as frozen seafood – bulk of the catch is marketed either rawor chilled. The latter has always resulted in fisher folk not getting optimum pricerealizations for their catches. Moreover, in a place like Nagapattinam where thecatches are predominantly multi species, lack of adequate post harvesttechnologies have a very adverse impact on the fishing community. Given thatdried fish is a popular delicacy with excellent nutritional qualities and improvedshelf life, this unit if successfully implemented, has the potential to trigger a newpost harvest scenario that is scientific, commercially viable and completely inalignment with the traditional practices of the fishing community. 32
    • Chapter 5 CONCLUSION The coordinated rehabilitation efforts by the various agencies has restorednear normalcy to an area that was very severely affected by the December 2004tsunami. Most of the lost and damaged property has since been restored andtime is now appropriate to implement radical and sustainable long-termmeasures that would help the community to develop the self vitality necessaryto mitigate future risks, especially economic risks. Radical changes areimportant, as only these would have the ability to render some amount of themuch needed psychological comfort to a community deeply traumatized and leftfeeling vulnerable after a natural disaster. Partnerships provide opportunities to synergize their competencies indesigning, financing, constructing and operating enterprises. The role ofpartnerships in successfully implementing various critical government/community based welfare initiatives is well recognized and has become anaccepted option. The three investment opportunities that are discussed in thisreport have great potential to extract the best out of the participating privateentities and transform them into successful and mutually rewarding businessmodels. While the objective of this ESCAP initiative is to develop a diversified andsustainable livelihood pattern for the affected communities, the intended goalwould be achieved only if the enterprise delivers its key commitment of creatingvalue to all the stake holders including the client – a key concept often ignoredin the implementation of various social initiatives. Adequate care shouldtherefore be taken to ensure that the private participant identified for the projectshould have the willingness to value such initiatives. Given that the identifiedopportunities are equally rewarding with significant spin off potential and belongto three different industry segments, it would be worthwhile to attemptimplementing at least two of the initiatives simultaneously. 33