Chemical Engineering Economics

2. Add on Project
• Add on Project can be either battery limit promoted by
forward or backward integration or an expansion project.
• Financing of such projects can be on similar guidelines as
for Greenfield projects
• Battery limit can be funded entirely from reserves of
organization
On going Project
• Ongoing project needs funds to overcome unforeseen problems
related to equipment failures.
• For liquid-liquid separation, for phase separation taking too lnog, it
becomes critical interms of batch processing
• Source of fundings can be short term loan taken from a bank, or
reserves of previous year could be used.

3. Sample Illustrations
• With actual and conceived projects a fair idea of financing
was done for the projects
• Some changes over a period of implementation
M/s UB Petroproducts Ltd
• Manufacture of 7000 TPA PEG, 8000 TPA PEA, 12000
Propylene oxide for captive consumption.
• Project Cost – Rs 71 Crores
• Debt : Equity – 1.84:1
• Term loan = Rs 46 Crores
• Equity = Rs 25 Crores
• Equity Provision – UB ltd – 24.8%, TIDCO – 26%, Montedip
Enimont Group – 10%, Promoters – 61%, Promoters –
39.2%

4. M/s Narmada Chematur Petrochemicals Ltd
• Manufacture of 20000 TPA. Aniline 10000 TPA Toluene di
iso cyanate.
• Project Cost – Rs 308.19 Crores
• Debt : Equity – 1.5:1
• Term loan = Rs 184.91 Crores
• Equity = Rs 123.8 Crores
• Total = 308.19 Crores
• Term loan Provision – Foreign Currency – 94.91%, ICICI –
20%, IDBI – 50%, IFCI – 20%, Total term loan – 184.91
• Equity Provision – GNFC – 68.55, Chematur Engineering AB
– 6, IBI, Chematur – 1.50, Total contributions by promoters
– 76.05 (61.6% of Equity), Public Issue (38.4% of Equity –
47.23, Total Equity – 123.28

5. Interest
• Concept of Interest is very much fascinating for Engineers
dealing with project economics
• Increase in interest rate by Government, which can make
industry to be more competititve.
• Boost the industry government will reduce interest rate.
• The project Engineers is often faced with
• Make use of debt or term loan for project construction and its
implication on profitability
• Purchase of an asset on instalment basis
• Decision making on alternatives available
• Making provision for continuous replacement of equipment after
very short service life.
• Other management based decisions

6. Basics
• Interest is compensation in form of money, that one has to
pay on borrowed capital at an agreed time interval
• Money lender will try to get compensation higher than
prevailing rate of inflation
• Higher interest rate – third party will hesitate to borrow
loan, there by trying to increase equity contribution.
• Interest rate is expressed as X percentage per annum - for
Rs 100 they have to pay Rs X as interest per annum.
• Borrower has to repay back principal to moneylender in
monthly, quarterly, half yearly or yearly instalments
timeframe.
• Bad practice not to repay the borrowed capital and to
convert them into non – performing assets.
• Affect the Sustainable development of nation

7. • Three main components of Interest are
1. True compensation rate that a money lender would like to
realise
2. Charge that moneylender would like to levy on borrower in form
of surcharge for manhours spent by staff on management of
issue of loan
3. Inconvenient cost if loan is repayed back earlier.
4. Failure of loan repayment.
• Financial institutions develop expertise and competency to
avoid problems with inconvenience
• Financial institutions generally entertain business which
have a proven track record
• Financial viability of project is looked into before
sanctioning loan
• Term loan is provided to borrower for longer duration
• Interest rate is governed by norms given by RBI

8. • Cost of inconvenience is added if period of loan is short
• Disbursement is against mortgage of current assets
• Interest rate on Working capital are higher than that for a
term loan because funds for a bank are from depositors in
form of fixed deposits on which bank has to pay interest.
• As a depositor, he will desire for a higher rate of interest as
during long term.